By Daniel Stefanski |

On Tuesday, the Arizona Corporation Commission (ACC) announced that it “joined a multi-state settlement with Robinhood Financial LLC, which will pay up to $10.2 million in penalties for operational failures that harmed main street investors.”

According to the ACC, “the investigation was sparked by Robinhood platform outages in March 2020, a time when hundreds of thousands of investors were relying on the Robinhood app to make trades. In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping.”

The investigation was led by “state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas coordinated through the North American Securities Administrators Association (NASAA) regarding Robinhood’s operational failures with respect to the retail market.”

NASAA President Andrew Hartnett issued the following statement in conjunction with the announcement: “Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors. Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”

ACC Chairman Jim O’Connor also added, “This agreement is part of an ongoing effort by state securities regulators to protect investors and to make sure they are treated fairly by their financial services companies.”

The ACC’s news release made clear that “the Commission found no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation.” Also, “Robinhood neither admitted nor denied the findings as set out in the states’ orders.”

One of the findings of fact in the order before the ACC was that “Robinhood acquired approximately 89,136 new Arizona customers from October 1, 2019, to March 31, 2020, for a total customer count of approximately 290,356 as of March 31, 2020. From October 1, 2019, to March 31, 2020, Robinhood approved approximately 13,713 Arizona customers for option trading and approximately 1,934 Arizona customers for margin trading.”

The ACC’s release highlighted these violations as included in the order:

• Negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads.
• Failure to have a reasonably designed customer identification program.
• Failure to supervise technology critical to providing customers with core broker-dealer services.
• Failure to have a reasonably designed system for dealing with customer inquiries.
• Failure to exercise due diligence before approving certain option accounts.
• Failure to report all customer complaints to FINRA and state securities regulators, as may be required.

Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.