Robinhood is back in the news for all the wrong reasons. It will pay $70 million for misleading customers, risky trading practices and outages. $57 million to FINRA and $13 million in compensation to harmed investors. Robinhood has exploded over the pandemic year and is one of the most popular stock/crypto investing applications in the US with over 31 million users.
Earlier this year, they became the most hated company in America after halting trading of meme stocks. Interestingly, they only halted buying and not selling, which tanked the price of these stocks (especially GameStop) that many retail investors were holding in hopes of making a quick return. It was a huge PR disaster for them ahead of their IPO this year, which is expected to value them north of $30 billion.
The problems have piled on since the meme stocks fiasco. In March, the app had additional outages and prevented 12.5 million users from trading. Their account opening policies have also been called in to question. For example, a 20 year old, after being rejected for options trading, noting he had "little investing experience" and "low risk tolerance", was approved three minutes later after he changed his risk appetite to "medium" and said he had "3 years of experience."
Short Squeez Takeaway: For a company of the size and scale of Robinhood, it is strange how many missteps they've taken. They have also not been transparent about their problems, which has angered their large user base. This isn't their first fine either. In 2019, they paid $65 million for disclosures regarding how they make money. Hopefully they can sort out their problems before the IPO, otherwise "meme" traders won't mind taking this stock to the ground.