The Financial Industry Regulatory Authority (FINRA) had a bone to pick with Robinhood—and boy, did they pick it. They reached a court settlement with Robinhood out nearly $70 million, a portion of which is reserved for customer restitution.
What does Robinhood's restitution list mean, and where can wronged customers find it?
FINRA slapped their largest fine ever on Robinhood
FINRA ordered Robinhood to pay a total of $69.6 million in fines and restitution. This breaks down to $57 million in fines and $12.6 million in restitution (including interest). To date, this is the largest lump sum that FINRA has ever instituted as a fine.
The restitution portion is reserved specifically for customers who experienced issues with Robinhood that ultimately cost them money.
Why all the FINRA fines, Robinhood?
Robinhood's role as a trading app leaves it with a tremendous amount of responsibility. FINRA didn't think that the company took its role seriously enough or performed well enough with massive amounts of consumer demand.
FINRA addressed quite a few woes, but there were four key issues that ultimately led to the record-breaking fine:
Some investors were trading on margin unwillingly due to a margin trade blocking feature that didn't work at certain times.
Some traders saw inaccurate balances due to technical errors. FINRA specifically pointed out a young man named Alex Kearns who died by suicide thinking that he held a balance of -$720,000, but his debt was actually much smaller. "He thought he blew up his life. He thought he screwed up beyond repair," his father Dan Kearns said in an interview.
Outages stalled trades and ultimately led many traders to experience losses because they weren't able to execute trades during that time. Customer service agents were largely unreachable.
More generally, FINRA said Robinhood democratized finance too much and didn't take the proper actions to ensure traders were ready for high-risk situations.
Where wronged Robinhood customers can find the restitution list
Robinhood will be repaying customers in the form of interest-bearing restitution over the course of the next 120 days. So far, the company has identified 3,332 customers who experienced capital losses to the tune of $3.7 million due to Robinhood's actions (or, rather, inactions).
The company still has to identify more customers and shell out the remaining $8.9 million.
The Robinhood restitution list can be found in a FINRA document after page 35, at the start of Attachment A.
Schedule 1 focuses on options trades, while Schedule 2 lays out customers with erroneous margin notifications.
What will Robinhood do after the restitution list is complete?
Robinhood might just be happy to move on from the FINRA lawsuit, especially considering that it has an IPO on the horizon. Investors expect the company to file paperwork with the SEC in the near future.
In the meantime, Robinhood plans to prioritize enhanced legal, compliance, risk, and anti-fraud functions. The company is strengthening its supervisory structure and remediating customer communications and data displays. Expanded customer support and improved options supervision should also help the company cover its bases.