Robinhood Probed for Luring Inexperienced Traders

Regulators alleged that Robinhood had failed to stop frequent outages and disruptions on its trading platform. 

Massachusetts securities regulators are investigating the zero-fee based app over alleged failures to protect its inexperienced investors. The app was promoting its products to them aggressively.

According to the regulator, the app-based platform has allegedly failed in its duty to stop frequent outages and disruptions on its trading platform. Besides, Robinhood was employing aggressive marketing tactics to draw inexperienced traders. They also used gamification methods to control clients.

According to the regulator, Robinhood gave customers without investment experience the ability to potentially make unlimited trades. Besides, they were not adequately screening them and approving for options trading. Robinhood earns its revenue for trades its customers execute.

The regulator alleged that Robinhood authorized 68% of Massachuttes-based customers to trade options even after reporting limited or without investing expertise.

Robinhood adopts changes to options trading products.

William Galvin said it was unethical for Robinhood to treat this like a game and lure young and inexperienced customers into making more and more trades. He said the firm fell short of the standards they require in Massachusetts.

William Galvin is the Secretary of the Commonwealth of Massachusetts.

Robinhood Responds

According to Robinhood’s spokesman, the company had not seen the complaint yet. However, it would continue to work closely and cooperatively with the regulators.

He stated that they disagreed with the regulators and would defend the company vigorously. He added the app was self-directed and did not make investment recommendations.

The spokesman said the company had worked diligently over the past months to ensure their systems scale and available when people needed them. They had made significant improvements, adding safeguards and enhanced educational materials to their options offering.

Moreover, Robinhood has enabled millions of people to make their first investment, and they remain continuously focused on serving them.

According to the fintech unicorn, Robinhood takes the credit for helping popularize trading among millennials. Recently, they announced multiple changes to its options trading products.

The move was part of the improvements the company promised to do after one of its customers committed suicide thinking he incurred losses over $700,000.

Moreover, Robinhood introduced new measures that make it harder for options traders to qualify to support sophisticated products on the platform. The new measures included additional criteria and education for customers seeking level 3 options authorization.

Now, Robinhood requires customers wishing to trade options to disclose their investment experience, knowledge, and personal financial information such as income – among other things.

Robinhood then conducts an assessment of such information to decide whether they can approve a customer for options trading.