According to legend, the heroic outlaw Robin Hood robbed from the rich to give to the poor. But, according to a pair of lawsuits filed by the Securities and Exchange Commission (SEC) and the state of Massachusetts, Robinhood Financial LLC is accused of taking advantage of inexperienced investors.
One of the fastest-growing brokerages in history
Robinhood made waves as one of the fastest-growing financial companies the world has ever seen. The company was founded in 2013 and, within a few years, was valued at $11 billion. The company’s mobile app was instrumental in the company’s growth. By providing a gaming-style interface, the app allowed — and allegedly encouraged — users to buy and trade shares frequently.
The SEC alleges that Robinhood falsely advertised that it charged nothing for trades, and the company recently agreed to pay $65 million to settle the allegations.
The lawsuit filed by Massachusetts is ongoing. The suit claims that Robinhood breached its fiduciary duty to its clients by using “aggressive tactics to attract inexperienced investors” and “gamification strategies to manipulate customers.”
According to the suit, a gaming-style interface, along with daily notifications showing the change in the value of an investor’s stocks, could have caused people to engage in more trades than they would have otherwise. Robinhood has rejected the claims.
Tread carefully when utilizing new tech to facilitate trades
For many investors, Robinhood has undoubtedly made trading fun and exciting. However, it is always important to proceed with caution when utilizing new technology in securities trading. If you find yourself facing possible civil or criminal exposure in financial matters, please contact the attorneys at Ford O’Brien Landy. We advise and represent clients in New York and Nationwide.
Source: CBS News, “Robinhood Financial Fined $65 Million By SEC for Misleading Users,” Dec. 17, 2020
Source: Axios, “Robinhood Accused of Securities Law Violations,” Dec. 17, 2020