Robinhood confirms Massachusetts authorities seek to revoke its license
Trading app Robinhood is facing more troubles in Massachusetts, the company has confirmed. In a statement issued on April 15, 2021, Robinhood says that the Massachusetts Securities Division is seeking to revoke Robinhood’s license in Massachusetts.
This marks yet another action by Massachusetts authorities against Robinhood. As FX News Group has reported, the Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth on December 16, 2020, filed an administrative complaint to commence proceedings against Robinhood Financial LLC. The company allegedly violated the Massachusetts Uniform Securities Act and Regulations.
In particular, Robinhood allegedly aggressively marketed itself to Massachusetts investors without regard for the best interest of its customers and failed to maintain the necessary infrastructure to meet the needs of its growing customer base.
The complaint notes that in the face of Robinhood’s inability to provide adequate infrastructure, the company continues to invite more customers to open accounts. Once these accounts are open, the company encourages traders to use the platform constantly. Customers are constantly bombarded with strategies designed to encourage them to engage with the platform. The use of these strategies is often referred to as “gamification”.
Furthermore, Robinhood gave hundreds of customers with limited or no investment experience the ability to make thousands of trades in a matter of months. As one example, Robinhood allowed a customer with no investment experience to make more than 12,700 trades in just over six months.
The company allowed thousands of inexperienced investors to engage in risky options trading activities, thereby breaching its own policies for screening customers’ profiles.
The complaint explains that, as a broker-dealer registered in Massachusetts, Robinhood has an obligation to protect its customers and their assets. However, its business model has put customers and their assets at risk. The company allegedly exposes investors to harm.
This administrative complaint, however, is now amplified with an additional action.
Below is Robinhood’s statement on the latest developments in Massachusetts:
“Today, the Massachusetts Securities Division said it would seek to revoke Robinhood’s license in Massachusetts, which would prevent millions of Bay Staters from accessing our service.
We love Massachusetts and our Massachusetts customers and we fully intend to continue serving them for the long term. Robinhood has helped bring millions more people into our financial system, and the Massachusetts Securities Division’s attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for. We don’t believe our customers are naive as the Massachusetts Securities Division paints them to be. Showing a list of companies in a certain sector is not a recommendation. Giving people information about the movement of the stocks they own or watch is not a recommendation.
The complaint reflects the old way of thinking: That new, younger, and more diverse investors don’t have a place in the markets. By trying to block Robinhood, the division is attempting to bring its residents back in time and reinstate the financial barriers that Robinhood was founded to break down. We will stand with our customers to enable them to have the investing experience they want. We will not succumb to unfounded, politicized allegations and unreasonable demands from the Massachusetts Securities Division. We welcome the opportunity to correct the record on both the facts and the law, and expect to prevail in state court.
We filed in Massachusetts State Court a complaint and motion for preliminary injunction to prevent the Massachusetts Securities Division from proceeding with their administrative case against Robinhood Financial. The Massachusetts Securities Division’s new Fiduciary Rule exceeds its authority under both Massachusetts state law and federal law”.