U.S. regulators are investigating Robinhood after it temporarily blocked users from purchasing so-called meme stocks on its stock trading app amid the Reddit-fuelled short squeeze earlier this year.
Robinhood has received inquiries from the U.S. Securities and Exchange Commission’s Division of Examinations, the Financial Industry Regulatory Authority, and the New York Attorney General’s Office, among other state attorneys general offices and state securities regulators, the company said in a securities filing this week. On top of these probes, it’s also juggling nearly 50 lawsuits related to the so-called GameStonks saga, including a class-action lawsuit from pissed-off stockholders.
Last month, retail investors from the r/WallStreetBets forum and elsewhere online bought up stocks for beleaguered companies like GameStop, AMC, and Nokia to send the price soaring and screw over hedge funds that bet on their prices to tank. At the height of this buying frenzy, Robinhood temporarily prevented users from purchasing meme stocks, a move it claims wasn’t aimed at users but rather resulted from surging clearinghouse collateral requirements.
State regulators and FINRA are also investigating Robinhood for an outage the app experienced in March 2020 as the market reacted to widespread lockdowns amid the coronavirus pandemic. Robinhood’s options trading approval process and related customer communications and displays are being scrutinised as part of this investigation as well. In this week’s filing, Robinhood said its units, Robinhood Securities and Robinhood Financial, are negotiating a settlement with FINRA that could potentially cost the broker at least $US26.6 ($35) million.
As part of yet another investigation, the SEC, the New York General’s Office, and other regulators are looking into incidents of unauthorised takeovers of Robinhood customer accounts, the company said.
So TL;DR: Looks like Robinhood is going to be knee-deep in legal proceedings for a while. Grab some popcorn, folks, this drama is far from over.