Robinhood, the self-proclaimed “Democratized Finance” app. accused to deceive and rob retail investors will have to shell out an additional $ 30 million to placate regulators. This increases the company’s overall regulatory penalty and transaction board to well above $ 100 million.
In a storage area On Tuesday, the New York State Department of Financial Services ordered Robinhood’s cryptocurrency division to pay the hefty fine and accused the company of engaging in “significant violations of money laundering, cyber security and consumer protection.” . The financial blow marks only the latest in a series of regulatory headwinds for the company in recent years and the first cryptocurrency application for the New York regulator.
While Robinhood is best known for its micro stock trading service appealing to casual investors, the company’s crypto arm manages an exchange which allows users to buy and sell cryptocurrency. NYDFS investigators, who opened their initial investigation last March, complaint Robinhood failed to maintain effective and compliant cybersecurity programs, violated reporting requirements, and improperly certified compliance. The agency found “critical failures” in the company’s cybersecurity program, which it said did not fully address “operational risks”. In addition to the penalty, Robinhood will need to hire an independent consultant who will perform an assessment to determine the company’s compliance in the future.
“As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance, a failure that led to significant violations of the Department’s anti-money laundering and cybersecurity regulations,” NYDFS financial services superintendent Adrienne A. Harris said in a statement.
Responding to Gizmodo’s request for comment, Robinhood’s Associate General Counsel of Litigation and Regulatory Enforcement Cheryl Crumpton said the company is “happy” to finalize the deal.
“We have made significant progress in creating industry-leading legal, compliance and cybersecurity programs and will continue to prioritize this work to better serve our customers,” said Crumpton. “We remain proud to offer a more accessible and low-cost platform to buy and sell cryptocurrencies and are excited to continue growing our business responsibly with new products and services our customers want.”
Unfortunately, the NYDFS well it was just the beginning of Robinhood’s woes on Tuesday. Within hours of the announcement, Robinhood CEO and founder Vlad Tenev posted a blog post announcing that the company was cutting about 23% of its workforce as part of a larger corporate reorganization. ”Tenev, addressing his newly unemployed staff as” Robinhoodies, “said the drastic cuts will impact workers in the whole company, with the operations, marketing and program management teams carrying the brunt.
The layoffs come about three months after Robinhood announced it would move to eliminate 9% of its staff after a period of “hyper-growth” fueled by the pandemic. Now, Tenev says those cuts “didn’t go far enough”. The CEO said rising inflation, coupled with the collapse of the cryptocurrency market, has significantly reduced his clients’ trading activity.
“Last year, we took over many of our operational functions under the assumption that the increased retail involvement we had seen with stock and crypto markets in the COVID era would last through 2022,” said Tenev. “In this new environment, we operate with more staff than we should. As CEO, I have approved and taken responsibility for our ambitious staffing trajectory – this is up to me. ”
Robinhood was founded nearly a decade ago in 2013, but only entered the collective imagination of most people last year for its role as the primary vehicle for retail investors to pump Gamestop, AMCand others so-called meme-stock. While some users have made millions during the trading frenzy, many others have lost money. Robinhood infuriated some of its users when she stepped in stop trade of some stocks that prevented some users from selling until prices went down. Over the next year, the company faced numerous complaints and regulatory investigations. Last June, the Financial Industry Regulatory Authority (FINRA) hit Robinhood with a $ 57 million fine, the largest penalty the agency has ever issued. Not long after, Robinhood agreed Paying the Securities and Exchange Commission $ 65 million to settle charges misleading clients by claiming to be a commission-free method of stock trading.
Individual investors allegedly burned by Robinhood are also starting to see some payouts. Earlier this year, a FINRA referee ruled in favor of a 27-year-old truck driver named Jose Batista, who claimed he lost money after Robinhood enacted his trade restrictions. FINRA ordered Robinhood to pay the man $ 29,500 in restitution. Batista is far from alone though. The Federal Trade Commission said it received 3,081 complaints regarding Robinhood between 2020 and mid-2021 according to 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 the exchanges of people who bought the stock legitimately,” said in a complaint one user who said he was forced to sell at a loss. due to the Robinhood surgery. “Since Robinhood hasn’t responded to customer service emails, tweets or anything else related to this issue, I have to assume Robinhood may do so in the future under any other title they don’t want to pay for.”
Updated at 5:05 PM ET with more news on workforce cuts.