Regulators from the state of Massachusetts alleging that the financial trading app Robinhood preys on inexperienced investors with the use of gamification as well as suffers from rampant blackouts and disruptions in the online marketplace.
Robinhood Accused of Preying on Inexperienced Investors
These allegations mark the first time that Massachusetts makes use of the state’s fiduciary rule to bring charges against a brokerage firm since the drafting of the new law back in September. The charges were filed by the office William Galvin, the Secretary of the Commonwealth of Massachusetts.
Regulators express concern over the fact that Robinhood preys on inexperienced investors and fails to properly screen investors before allowing them access to risky investment vehicles such as unlimited stock trades and stock options.
FINRA Fined Robinhood $1.25M Based on Its Best Execution Practices
Another point of contention arises with the gamification of stock trades that encourages inexperienced users to execute more trades through rewarding screen animations. Lastly, the Robinhood platform suffers from inadequate infrastructure that has led to nearly 70 outages for Massachusetts users year-to-date.
The state of Massachusetts isn’t the only entity raising charges against Robinhood. Finra recently fined Robinhood for $1.25 million based on its best execution practices including payments for order flow which is a major driver of revenue for brokerages.
Robinhood got its start in 2013, where since then it has erupted in popularity grossing over 13 million users. Robinhood’s holdings just in the state of Massachusetts equals nearly $1.6 billion with over half a million customers. Robinhood began to draw negative scrutiny from regulators following the tragic death of Alex Kearns who took his life after perceiving losses of $730,000.
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