About six months after the Securities and Exchange Commission (SEC) announced the first distribution of $25.67 million to investors harmed by Robinhood’s omissions and false disclosures, the regulator is about to make another distribution from the $65 million fund.

According to an SEC order, signed by Vanessa A. Countryman, there is a balance of $39,271,403.63 left in the Fair Fund. Since the deadline for the first distribution, the Fund Administrator has received the necessary information from an additional 5,783 eligible investors.

The Commission staff will transfer $6,549,141.13 from the Fair Fund to the Fair Fund’s escrow account at The Huntington National Bank, and the Fund Administrator will distribute such monies to the eligible investors identified on the Payee List in accordance with the Plan.

The $65 million penalty stems from an SEC order where the regulator said that one of Robinhood’s primary selling points was that it did not charge its customers trading commissions. In reality, however, “commission free” trading at Robinhood came with a catch: Robinhood’s customers received inferior execution prices compared to what they would have received from Robinhood’s competitors.

For larger value orders, this price differential exceeded the amount of commissions that Robinhood’s competitors would have charged. These inferior prices were caused, in large part, by the unusually high fees Robinhood charged the principal trading firms to which it routed its customer orders for the opportunity to obtain Robinhood’s customer order flow. These fees are generally referred to as “payment for order flow.”

Robinhood omitted to disclose its receipt of payment for order flow in certain of its communications with its retail customers. Since Robinhood’s launch, payment for order flow has been Robinhood’s single largest source of revenue. In its customer agreements and trade confirmations, Robinhood stated it “may” receive payment for order flow, and it disclosed certain information about those payments, as required, in its SEC-mandated Rule 606 reports.

However, in FAQs on its website describing how it made money, and in certain communications with customers addressing the same issue, Robinhood omitted payment for order flow when it described its revenue sources because it believed that payment for order flow might be viewed as controversial by customers. Robinhood also instructed its customer service representatives not to mention payment for order flow in responding to questions about Robinhood’s sources of revenue.

As a broker-dealer that routed its customer orders for execution, Robinhood had a duty to seek to obtain the best reasonably available terms for its customers’ orders, including price. This duty is referred to as the duty of “best execution.” From July 2016 through June 2019, while Robinhood was on notice that its high payment for order flow rates from principal trading firms could result in inferior execution prices for its customers, Robinhood violated its duty of best execution by failing to conduct adequate, regular, and rigorous reviews of the execution quality it provided on customer orders.

Robinhood did not begin comparing its execution quality to that of its competitors until October 2018, and did not take appropriate steps during the entire period to assess whether its high payment for order flow rates adversely affected customer execution prices. The Commission ordered the Respondent to pay a $65 million civil money penalty.