Robinhood, the popular crypto and stock trading app, has reached a settlement with the securities regulator of Massachusetts, agreeing to pay a $7.5 million penalty and revise its digital engagement policies. The resolution concludes a legal dispute that originated in December 2020, with allegations that Robinhood gamified cryptocurrency and stock trading to attract inexperienced investors.
Terms of Settlement
In the agreement announced on January 18 by Secretary of the Commonwealth of Massachusetts William Galvin, Robinhood commits to a $7.5 million penalty and a comprehensive overhaul of its digital engagement practices. The settlement addresses concerns raised in the original complaint, where Robinhood was accused of presenting trading as a game, potentially misleading inexperienced investors.
Galvin, who initially proposed revoking Robinhood's broker-dealer license in the state, highlighted the importance of the Massachusetts Fiduciary Rule in protecting investors' interests. The settlement puts an end to a protracted legal battle that spanned roughly three years.
Allegations and Denials
The original complaint in 2020 accused Robinhood of gamifying trading and investing, creating a perception that it was akin to a winnable game. Despite Robinhood's denial of the "gamification" claims, the settlement mandates changes to its digital engagement practices in Massachusetts.
In addition to addressing the gamification concerns, the Massachusetts Securities Commission required Robinhood to resolve "serious cybersecurity issues." The trading platform refuted claims of its app being gamified and asserted it had taken steps to address cybersecurity concerns since 2021.
Impact on Robinhood's Practices
As part of the settlement, Robinhood must cease certain practices associated with gamification. This includes discontinuing the use of celebratory imagery linked to trade frequency, push notifications emphasizing specific lists, and features resembling games of chance. The company is also required to add disclosures to its listings and engage an independent compliance consultant to assess other digital engagement practices still in use.
This settlement follows previous penalties imposed on Robinhood, including a $70 million fine by the Financial Industry Regulatory Authority in 2021 and a $10 million settlement in April 2023 related to service disruptions. The resolution reflects a commitment to addressing concerns about investor protection, cybersecurity, and the potential impact of gamification in the trading experience provided by platforms like Robinhood.
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