Commission-free online brokerage Robinhood agreed to pay $65 million in penalties for misleading customers as to the largest source of its revenue: fees it earned from trading firms for routing customer orders to them.
The Securities and Exchange Commission said that between 2015 and 2018, Robinhood made misleading statements about the practice. Though its main selling point to customers was the ability to trade commission free, it did not adequately disclose that customer orders were being executed at prices inferior to other brokers, and that Robinhood was getting paid to direct trades to trading firms offering those inferior prices, the SEC said.
“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, Director of the SEC’s Enforcement Division in a statement. “Brokerage firms cannot mislead customers about order execution quality.”
Robinhood settled the charges without admitting or denying the SEC’s findings, and the firm says that it is fully transparent with customers about its current revenue streams.
“The settlement relates to historical practices that do not reflect Robinhood today,” Dan Gallagher, chief legal officer at Robinhood said in an email. ” We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”
