Robinhood fined by Vermont state regulator over trading outages

Robinhood will pay roughly $1.1 million in penalties for its systemwide outages and options trading practices, the Vermont Department of Financial Regulation said.

The settlement regards Robinhood’s multiple trading outages in the spring of 2020, lack of due diligence before approving customers to place options trades and providing misleading information to customers about margin trading.

Robinhood Markets was ordered to pay a $640,000 regulatory fine. In addition, it will funnel $590,000 to Vermont’s General Fund and $50,000 to the Education Fund.

A group of Robinhood customers were pushing for a class-action lawsuit to sue the stock-buying app over the technical failures Robinhood experienced in March of 2020. The plaintiffs were actively building a case against Robinhood for their negligence.

Robinhood allegedly breached its contracts and fiduciary obligations to customers, flouted regulatory requirements and acted in a reckless, profit-driven manner. This had left traders unable to move money while stock markets surged on March 2, 2020.

Technical issues marred the commission-free investing app on many occasions last year, unnerving investors trying to access their accounts during the market rally.

At the time, Robinhood had customers with more than 10 million accounts, and a fair number of them were frustrated trying to figure out how they fared during a bullish trading session. Clients have complained about not having access to their accounts and having long wait times for customer service.

Robinhood’s CEO blamed the shutdown on volatile market conditions, record trading volume, and record new account requests, which caused stress on the company’s infrastructure.

Robinhood makes it harder for options traders to qualify

“That was an unacceptable thing to have the only way people can access their money be your platform and then when a lot of customers go to your account to access their money and they can’t access it and their money was losing value extraordinarily during those days of trading losses,” said DFR Commissioner Mike Pieciak.

The state regulator also noticed that at least 40 customers in Vermont complained to the watchdog or Robinhood form a series of disruptions on its brokerage app. The Vermont Department of Financial Regulation added that the no-fee app’s automated process for approving investor applications wasn’t thorough enough to choose which customers should have access to risky options and margin trading features.

Separately, Robinhood is facing multiple investigations into repeated outages of its trading platform, as well as failure to provide a swift resolution resulted in some investors losing money after being unable to access their accounts.

The probes were also extended to brokerage accounts that were compromised by an attack that gave hackers the ability to take over users’ trades and funds in 2020.

Robinhood also made multiple changes to its options trading products, part of the improvements the app promised to do after one of its customers died by suicide thinking he incurred losses of over $700,000. The app has introduced new measures that make it harder for options traders to qualify to support sophisticated products on its platform.