The SEC says that between 2015 and 2018, the brokerage company Robinhood made misleading omissions about routing customer orders, known as “payments for order flow,” which constituted its largest source of income. The SEC says that because the firm received “unusually high payment for order flow rates,” customers’ orders were executed at worse prices than those of other brokers. Also, from October 2018 to June 2019, Robinhood’s website FAQ allegedly falsely stated that its execution quality was equal to or better than its competitors’, the SEC says.
“By March 2019, Robinhood had conducted a more extensive internal analysis that found Robinhood’s execution quality and price improvement metrics were substantially worse than other retail broker-dealers’ in many respects, and senior Robinhood personnel were aware of this analysis,” the settlement agreement states, adding that the claims about Robinhood’s execution quality weren’t removed from the firm’s website until June 2019.
Robinhood’s alleged failures resulted in customers being deprived of $34.1 million, “even after taking into account the savings from not paying a commission” — one of the firm’s selling points, the SEC says.
“There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money,” Erin Schneider, director of the SEC’s San Francisco regional office, says in a statement. “But innovation does not negate responsibility under the federal securities laws.”
Jeffrey Newman represents whistleblowers nationwide including SEC whistleblowers and he can be reached at Jeffrey.Newman1@gmail.com or at 617-823-3217