Massachusetts securities regulators file complaint against Robinhood
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William Galvin, Massachusetts secretary of the Commonwealth, speaking in Boston in October 2020.
Massachusetts regulators filed a complaint against online investing platform Robinhood on Wednesday, accusing the company of violating state securities laws by aggressively marketing to inexperienced investors and failing to protect customers and their assets.
Why it matters: The complaint suggests Robinhood's tactics exposed investors in the state to "unnecessary trading risks" and encouraged its customers to use the platform through “gamification.”
- The filing recommends the the company be fined and also includes an order that Robinhood hire a consultant to review its infrastructure and marketing policies.
The big picture: Robinhood reported it experienced an outage on March 2 right as markets opened and jumped by 4%, preventing traders who use the app from trading during a market rebound.
- Close to half a million people in Massachusetts have accounts with Robinhood, valued at more than $1.6 billion, according to the complaint.
- Professional investors have likened Robinhood's design to a mobile gaming app.
What they're saying: “They’ve exploited the current situation with the pandemic. They contributed to the frothiness of the market, bringing people in who don’t know much about it," They’re not responsible fiduciaries," William Galvin, secretary of the Commonwealth of Massachusetts, said in an interview per Bloomberg.
- “Their entire business plan is about building volume for their site and not helping people intelligently invest,” Galvin said in an interview, according to the Boston Globe.
- “They have to make sure that their customers understand that there’s a risk of loss. It’s not a game. It’s real money, and they could lose it.”
The other side: Robinhood said in a statement that the company disagrees with the accusations and intends to defend itself “vigorously," according to the Globe.
- “Millions of people have made their first investments through Robinhood, and we remain continuously focused on serving them,”
