Robinhood Crypto Fined $30 Million by New York Regulator

Robinhood, the self-declared ‘Democratized finance’ app accused of misleading and ripping off retail investors will have to cough up another $30 million to appease regulators. That brings the company’s combined regulatory penalty and settlement category to well over $100 million.

In a archiving On Tuesday, the New York State Department of Financial Services ordered Robinhood’s cryptocurrency division to pay the hefty penalty, accusing the company off engage in “significant breaches of money laundering, cyber security and consumer protection.” The financial blow marks just the latest in a series of regulatory headwinds for the company in recent years, and first cryptocurrency enforcement for the New York regulator.

While Robinhood is best known for its micro-stock trading service that appeals to casual investors, the company’s crypto division also has operates a switchboard which allows users to buy and sell cryptocurrency. NYDFS investigators, who opened their first investigation last March, claim Robinhood failed to maintain effective and compliant cybersecurity programs, violated reporting requirements, and improperly certified compliance. The agency found “critical flaws” in the company’s cybersecurity program, which it claims did not fully address “operational risks. In addition to the penalty, Robinhood will have to retain an independent consultant who will conduct an evaluation to determine the company’s compliance going forward.

“As the business grew, Robinhood Crypto failed to invest the necessary resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” NYDFS Superintendent of Financial Services Adrienne A. Harris said in a statement.

In response to Gizmodo’s request for comment, Robinhood’s assistant general counsel for litigation and regulatory enforcement, Cheryl Crumpton, said the company was “pleased” to make the settlement final.

“We have made significant progress in building industry-leading legal, compliance and cybersecurity programs, and will continue to prioritize this effort to best serve our clients,” Crumpton said. “We remain proud to provide a more accessible, affordable platform to buy and sell crypto and are excited to continue growing our business responsibly with new products and services that our customers want.”

Robinhood was founded almost a decade ago in 2013, but only entered the collective imagination of most people last year for its role as the main vehicle for retail investors to pump up Gamestop, AMCand other so-called meme shares. While some users made off with millions during the trading frenzy, many lost more money. Robinhood enraged some users when it went in stop trading of certain stocks which prevented some users from selling until prices dropped. In the year since, the company has faced a number of regulatory complaints and investigations. Last June, the Financial Industry Regulatory Authority (FINRA) slapped Robinhood with a 57 million dollars in fines, the largest penalty the agency has ever issued. Not long after, Robinhood agreed to pay the Securities and Exchange Commission $65 million to pay fees, it misleads customers with claims of being a commission-free method of trading stocks.

Individual investors reportedly burned by Robinhood are also starting to see some payouts. Earlier this year, a FINRA arbitrator ruled in favor of a 27-year-old truck driver named Jose Batista, who claimed he had lost money after Robinhood adopted the trading restrictions. FINRA ordered Robinhood will pay the man $29,500 in restitution. However, Batista is far from alone. The Federal Trade Commission said it received 3,081 complaints involving Robinhood between 2020 and mid-2021 following a Freedom of Information Act request filed by Gizmodo earlier this year.

“I understand the market can be volatile, but this was Robinhood refusing to honor trades by people who bought the stock legitimately,” said one user who claimed they were forced to sell at a loss due to Robinhood’s intervention, in a complaint. “Since Robinhood has not responded to customer service emails, or tweets, or anything regarding this issue, I have to assume that Robinhood may do this in the future to other stocks they don’t want to pay out.”