Robinhood confirms regulatory investigations into Q4 2022 processing error
Online brokerage Robinhood Markets Inc (NASDAQ:HOOD) has filed its latest financial quarterly report with the Securities and Exchange Commission (SEC).
The report, aside the financial metrics, includes an update on legal and regulatory matters. The latest developments in this respect concern an error that occurred in December 2022.
FINRA Enforcement staff are conducting investigations related to, among other things:
- Robinhood Securities’ reporting of fractional share trades, as applicable, to a Trade Reporting Facility, the Over-the-Counter Reporting Facility, the Order Audit Trail System, and the Consolidated Audit Trail;
- RHS’s reporting of accounts holding significant options positions to the Large Option Position Report system;
- processing of certain requests for transfers of assets from Robinhood through the Automated Customer Account Transfer System; responses to Electronic Blue Sheets requests from FINRA;
- the delays in notification from third parties and process failures within our brokerage systems and operations in connection with the handling of a 1-for-25 reverse stock split transaction of Cosmo Health, Inc, in December 2022 (the “Q4 2022 Processing Error”);
- Robinhood Financial’s compliance with FINRA registration requirements for member personnel;
- marketing involving social media influencers and affiliates;
- collaring the prices of certain trade orders; and RHS’ compliance with best execution obligations.
Robinhood says it is cooperating with these investigations.
Robinhood Securities (RHS) has also received requests from the SEC Division of Enforcement regarding its compliance with Regulation SHO’s trade reporting and other requirements in connection with securities lending, fractional share trading, and the Q4 2022 Processing Error, and previously received similar requests from FINRA examinations staff.
RHS and RHF have also received requests from the SEC Division of Enforcement and FINRA Enforcement staff related to the Firms’ compliance with recordkeeping requirements, including requests regarding off-channel communications.
Regarding the January 2021 trading restrictions, RHM, RHF, RHS, and Robinhood’s Co-Founder and CEO, Vladimir Tenev, among others, have received requests for information, and in some cases, subpoenas and requests for testimony, related to investigations and examinations of the Early 2021 Trading Restrictions from the United States Attorney’s Office for the Northern District of California (USAO), the U.S. Department of Justice (DOJ), Antitrust Division, the SEC’s Division of Enforcement, FINRA, the New York Attorney General’s Office, other state attorneys general offices, and a number of state securities regulators. Also, a related search warrant was executed by the USAO to obtain Mr. Tenev’s cell phone. There have been several inquiries based on specific customer complaints.
Robinhood has also received requests from the SEC Division of Enforcement and FINRA related to employee trading in certain securities that were subject to the Early 2021 Trading Restrictions, including GameStop Corp. and AMC Entertainment Holdings, Inc., during the week of January 25, 2021. These matters include requests related to whether any employee trading in these securities may have occurred after the decision to impose the Early 2021 Trading Restrictions and before the public announcement of the Early 2021 Trading Restrictions on January 28, 2021.
FINRA Enforcement has also requested information about policies, procedures, and supervision related to employee trading generally.
Importantly, Robinhood confirms that, in January 2023, approximately 4,700 jointly represented customers filed a statement of claim with FINRA to initiate arbitration of individual claims against RHF and RHS arising out of the Early 2021 Trading Restrictions.