Robinhood’s co-founders, Vladimir Tenev and Baiju Bhatt, are facing regulatory investigations as they are not licensed by the Financial Industry Regulatory Authority (FINRA).
In a filing with the Securities and Exchange Commission, the no-fee app revealed that its top executives received an “investigative request” from Wall Street’s powerful self-regulator.
Even though CEO Tenev presides over one of the world’s largest online brokers, he failed to register with FINRA, which requires senior executives of broker-dealers and clearing houses to hold, as a minimum, a Series 7 and Series 24 license. Tenev’s phone was seized by federal attorneys earlier this month in one of Robinhood’s many legal battles.
“On July 26, 2021, RHF received a FINRA investigative request seeking documents and information related to its compliance with FINRA registration requirements for member personnel, including related to the FINRA non-registration status of Mr. Tenev and Mr. Bhatt. Robinhood is evaluating this matter and intends to cooperate with the investigation,” Robinhood said.
The discount brokerage added that the probe is at an advanced stage and could result in fines, penalties and monetary settlements, as well as additional compliance requirements or other consequences. However, details on the investigation are scarce. And, a deal is unlikely to be announced at this stage as the two sides have not formally negotiated a proposed settlement.
Robinhood further explains:
“These proceedings, inquiries, examinations, investigations and other regulatory matters may result in certain of our subsidiaries, including RHC, losing their regulatory licenses or ability to conduct business in certain jurisdictions, increase regulatory scrutiny of our business, restrict our operations or require us to change our business practices, require changes to our products and services, require changes in personnel or management, delay planned product or service launches or development, limit our ability to acquire other complementary businesses and technologies or lead to the suspension or expulsion of our broker-dealer or other regulated subsidiaries or their officers or employees.”
While it’s usual for the CEOs of financial holding companies to lack such licenses, the FINRA’s probe is raising further questions about Robinhood’s operations, which were already coming under greater scrutiny.
The Silicon Valley start-up has pointed out that Tenev is the CEO of the holding company Robinhood Markets, which means he is not required to register with FINRA. The heads of Robinhood’s brokerage arms, including Robinhood Financial and Robinhood Securities, have their respective approvals from the industry self-regulator.
The news is the latest headache for the upstart brokerage firm which faces regulatory investigations on multiple fronts, including over its prior restrictions that banned retail investors from buying shares in the so-called meme companies.
