Robinhood Pays $7.5M in Settlement Over Trading Gamification

Robinhood, the popular cryptocurrency and stock trading app, has settled with Massachusetts’ securities regulator, concluding a legal dispute that began in December 2020. The company has agreed to pay a $7.5 million penalty and commit to a major overhaul of its digital engagement practices. This decision follows allegations that Robinhood targeted inexperienced investors by gamifying trading in crypto and stocks.

Settlement Details and Background

The settlement, announced on January 18 by Massachusetts Secretary of the Commonwealth William Galvin, marks the end of a roughly three-year legal battle. Robinhood faced criticism for allegedly marketing its platform in a manner akin to a game, potentially misleading inexperienced investors. As part of the agreement, Robinhood will pay a substantial fine and revise its digital engagement strategies, especially those related to the so-called gamification of trading.

Robinhood’s deputy general counsel and head of government affairs, Lucas Moskowitz, commented on the settlement. He emphasized that the issues addressed were historical and did not reflect the current state of Robinhood. The firm was committed to providing market access to its Massachusetts customers and moving past these issues.

Allegations and Robinhood’s Response

The initial complaint by Galvin in 2020 accused Robinhood of using tactics that simplified trading and investing, equating it to a game that could be won, which could potentially mislead inexperienced investors. This approach to trading raised concerns about the risks and responsibilities associated with investing, especially for novice traders.

In response to these allegations, Robinhood has consistently rejected the notion that its app was gamified. The company asserted that it had taken numerous steps to address these concerns, particularly cybersecurity issues, since 2021. Robinhood’s efforts to challenge the state’s claims included filing a lawsuit against Galvin’s office, attempting to roll back the rule they were accused of violating.

Impact and Future Commitments

As part of the settlement, Robinhood has agreed to cease certain practices that were a point of contention. This includes celebratory imagery tied to trading frequency, push notifications emphasizing specific lists, and features resembling games of chance. The company must also include disclosures in its lists and work with an independent compliance consultant to review other digital engagement practices.

The settlement with Massachusetts is not Robinhood’s first encounter with regulatory actions. The Financial Industry Regulatory Authority (FINRA) fined Robinhood approximately $70 million in 2021 for causing significant harm to its users. Additionally, in April 2023, Robinhood reached a $10 million settlement with securities regulators in several states following allegations of multiple outages and client service failures.

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