Robinhood: Regulators raise allegations against trading app
Robinhood’s Ärading app experienced a huge increase in customers this year. But the consequences are not always pleasant. Authorities in the US are now accusing the company of targeting young people without first providing ample information about the risks.
Massachusetts securities regulators filed a complaint against Robinhood Financial LLC’s popular trading platform on Wednesday. According to a Wall Street Journal report, they accuse the Bitcoin Evolution company of aggressive marketing to inexperienced investors. They also allege that Robinhood failed to implement controls to protect new customers from excessive losses.
The Massachusetts Securities Division’s 24-page complaint says Robinhood failed to adequately protect its customers and their assets as required by state laws and regulations. It said investors were directed to take „unnecessary trading risks“ that fell „far short of the fiduciary standard“. That standard, he said, requires brokers to always act in the best interests of their clients. In an initial statement, a spokeswoman for Robinhood vehemently denied the allegations. The company will defend itself vehemently against the complaint. The crypto portal Cointelegraph quotes the reaction as follows:
Robinhood has opened up financial markets to a new generation of people who were previously excluded. We are committed to operating with integrity, transparency and in compliance with all applicable laws and regulations. We have not seen the complaint, but we have and will continue to work closely and cooperatively with all our regulators.
Young people make up cRobinhood’s target audience
The fact is that Robinhood’s trading app is tailored to young people. The layout is intuitive to use and orders are placed using simple tapping gestures. A subsequent „swipe“ is enough to execute the trade. Moreover, trading is free of charge. However, it is precisely these non-existent entry barriers that critics accuse the company of. Young, inexperienced people are being lured to the stock exchange without having dealt with the risks in detail beforehand. There is a separate app for crypto transactions, but like the trading app, it is only accessible to users in the USA. The lion’s share of the users goes into trading stocks and the like.
In June of this year, a sad story researched by the US magazine „Forbes“ caused a stir. A 20-year-old Robinhood customer had committed suicide after his account slipped into the red with 730,000 US dollars. He was among three million new customers who opened accounts with Robinhood in the first quarter of 2020. As the stock market swung wildly back and forth, Kearns had started trading options. From his last note, which his parents found on the computer, it is clear that he had no idea of what he was doing.