Robinhood, the zero-fee trading app that has irreversibly changed the trading space, is currently facing an investigation from the securities regulators of Massachusetts, US.
These investigations are regarding allegations against Robinhood of failing to protect inexperienced investors, all the while enacting an aggressive promotion campaign against these traders. The news itself was reported by way of the Wall Street Journal.
Claims Of having No Screening And Aggressively Advertising
The Massachusetts Securities Division, according to its enforcement arm, has accused Robinhood of failing to uphold its duty to stop the frequent disruptions and outages within its platform. This comes alongside accusations of employing aggressive marketing tactics dedicated to pulling in inexperienced traders. One of these alleged measures was the usage of gamification methods in order to keep the clients in control.
The state regulator highlighted its issues: Robinhood has allowed customers to make a potentially unlimited number of trades, even if those customers in question have no investment experience. It should be noted, however, that Robinhood earns revenue for executed transactions, and the regulators claim that there was no proper screening done in order to approve these customers to trade in options.
Preying On The Ignorant
As the calculations of the regulator shows, Robinhood customers based in Massachusetts had a 68% authorization rate to trade in options. This, however, comes after these users had reported they hold limited to no expertise within the investment space.
As for what Robinhood has to say about the matter, it was very legally safe indeed. A spokesman of the trading app made a public statement, declaring that his company had yet to receive a complaint about the matter at hand. Even so, Robinhood assured the public that it would work closely with all the regulators needed in order to remedy the issue.
The Inevitable Defence
Of course, the spokesman stated that Robinhood completely disagrees with the complaint that was sent their way and the allegations within it. Robinhood claimed that it made no investment recommendations, instead of being a self-directed broker-dealer, so it is willing to defend these allegations vigorously.
Furthermore, the spokesperson claimed that Robinhood had been diligently working towards ensuring system scaling for the app itself, allowing people to gain access. The firm took care to highlight the significant improvements it’s made to the options offerings it provides in general, including the addition of enhanced educational materials and various safeguards.