Massachusetts wants to pull Robinhood plug

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To defend his case, state regulators accused Robinhood of not properly considering customer-traded fractional shares on its platform and said the company “continues to seduce and induce inexperienced customers to risky transactions.”

Massachusetts ’push to revoke Robinhood’s license is one more hurdle the company faces as it prepares to go public after appearing confidentially on a IPO last month. The big question is whether Robinhood’s legal and public relations issues will be important to investors compared to the startup’s impressive growth.

In a blog post, Robinhood harshly criticized what he described as “baseless politicized allegations and unreasonable demands” from Massachusetts regulators and warned that revoking its license would block access to millions of customers.

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“The Massachusetts Division of Securities’ attempt to prevent Massachusetts residents from choosing how to invest is elitist and against everything we stand for, ”Robinhood said. “We don’t think our customers are naive, because the Massachusetts Division of Securities believes they are.”

Robinhood resigned by filing a complaint and motion in Massachusetts State Court for a preliminary instruction that would stop the regulatory case against the company. Robinhood argues that the regulator’s new fiduciary rule “exceeds its authority” under state and federal law.

“In an attempt to block Robinhood, the division is trying to reclaim its residents over time and restore the financial barriers that Robinhood was founded to break,” Robinhood said in the blog post.

More than just confetti

The battle began in December when Massachusetts regulators filed a 24-page complaint against Robinhood accusing the company of violating state laws and regulations by failing to protect customers and safeguard its system. Officials claimed Robinhood attracted inexperienced investors to its platform with game elements such as colored confetti, a practice from which the company recently said it is eliminating.

The amended complaint filed Thursday says Robinhood has continued with a pattern of aggressive customer attraction, including some with “little or no investment experience.” He cites news reports indicating that Robinhood has expanded margin lending and tried to persuade customers to deposit their stimulus checks by offering “free cash” for deposits.

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Robinhood’s conduct since the complaint was filed in December “poses a substantial and ongoing risk to Massachusetts investors,” the complaint said.

Massachusetts regulators said Robinhood has not reported its fractional executions of the shares for more than a year, “demonstrating its inability to meet the most basic requirements” required of brokers.

Booming growth

The struggle with Massachusetts adds to a long list of issues Robinhood has been dealing with in recent months.

CEO Vlad Tenev was taken to Congress earlier this year amid scrutiny over Robinhood trade restrictions during the GameStop turmoil. Robinhood also received a $ 65 million fine from the SEC for allegedly misleading customers.
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The company was sued by the parents of a 20-year-old trader who committed suicide after seeing a negative balance of $ 730,000 in his trading account and mistakenly believed it was the sum he owed.

And yet, this turbulent stretch for Robinhood, the company continues to grow rapidly, especially in the cryptographic space.

During the first quarter alone, 9.5 million customers traded cryptocurrencies on Robinhood, according to the company. This exceeds just 1.7 million in the last three months of last year.

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