Robinhood is fined $70 million over misleading customers and system outages. (Published 2021) (2024)

Robinhood Financial, the online stock-trading app, was fined $70 million by the securities industry’s self-regulator on Wednesday for a series of failures that the agency said hurt Robinhood’s customers.

The announcement came ahead of Robinhood filing an investment prospectus to go public, which is likely to land later this week, a person with knowledge of the matter said. The company’s initial public offering is expected to be one of the highest profile of the year.

The fine, the largest ever imposed by the Financial Industry Regulatory Authority, which is known as FINRA, was the latest legal punishment for Robinhood. The eight-year-old start-up has upended the online brokerage business by introducing fee-free trading and gained prominence this year as the venue of choice for much of the stock-trading mania that boosted shares in companies like GameStop and AMC Entertainment.

The Silicon Valley company has repeatedly been accused of operational and regulatory lapses by regulators and lawmakers that, critics said, left customers exposed to sometimes ruinous losses. Robinhood has already paid tens of millions of dollars in fines, including $65 million to the Securities and Exchange Commission, for misleading customers about its business.

In its announcement on Wednesday, FINRA said that the fine covered issues like false and misleading information and the harm suffered by customers from systems outages in March 2020. The regulator said Robinhood must follow rules that were designed to protect investors and the markets.

“Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later,” Jessica Hopper, the head of FINRA’s enforcement department, said in a statement.