Robinhood Markets Inc. told regulators in Massachusetts on Friday that he is not taking advantage of inexperienced customers, and ended a wild week during which the popular online brokerage caused fierce fury to do just the opposite: stay in the way of customers. .
Still busting a sharp setback from its decision this week to restrict customers from making transactions on certain high-flying stocks, Robinhood responded Friday afternoon to a complaint from Massachusetts securities regulators in December. The state has accused Robinhood of failing to protect its customers and assets by aggressively marketing to inexperienced investors and failing to implement controls to protect them.
In a 50-page response, Robinhood called the allegations false and the complaint “distorts Robinhood’s experience.”
Instead, Robinhood countered, it has helped open the door to investment for millions of people. He rejected claims that the brokerage gamifies investment, does not keep fluid technology operators afloat, and allows clients to trade riskier options without having the necessary qualifications. Moreover, Robinhood said, the articles for which he was criticized by regulators are legal.
“It is legal for customers to choose to receive notifications on their phones, join waiting lists and receive free stock options. The functions of applications like digital confetti are legal, “Robinhood said in his response.” It’s also legal for these customers to trade options and for Robinhood to approve customers for options trading based on the experience of previous options “.
He continued: “And it’s legal for Robinhood to have an app that, in isolated cases, has experienced temporary interruptions. All websites and apps are susceptible to interruptions and many brokerage firms experience them.”
A spokeswoman for William Galvin, the Commonwealth Secretary of Massachusetts, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response, saying it is being reviewed. He added that the office continues to rely on his complaint “and recent events have not changed that.”
In just over a month, much has changed for online brokerage, where millions of users have flocked in recent years to do free trades. In addition to the Massachusetts allegations, Robinhood now faces scrutiny from individual investors and members of Congress, who have accused the company of preventing users from taking advantage of a wild week of trading. On Thursday, Robinhood was one of many brokers that restricted the trading of hot stocks, including GameStop Corp.
and AMC Entertainment Holdings Inc.
Behind the scenes, Robinhood was quickly preparing a more than $ 1 billion infusion aimed at helping the company meet the growing demands for money from the frantic trade.
In Friday’s response to the Massachusetts case, the company also discussed claims it does not meet the “fiduciary rule” the state had recently adopted, which requires intermediaries to act in the interests of customers. The allegations focused on the tactics the company uses to keep customers engaged, claiming that it “encourages customers to use the platform constantly” through what it calls “gamification”.
Robinhood argued that the fiduciary rule does not apply because, according to brokerage, it is only relevant when a broker broker gives a recommendation to a client or provides investment advice. Robinhood said in its response that its customers make their own business decisions. He added that the lists he offers, such as the 100 most popular stocks, are the same for all customers and are not targeted to any specific customer or group. He also denied that he “gamified” the experience for investors and claimed that criticizing app features like confetti “reflects a clearly outdated view of communication in the digital age”.
Robinhood has long been proud to “democratize” markets, and some of its moves this week to restrict trade were seen as directly underestimating its mission. In its response Friday, Robinhood reiterated that idea to regulators, with the broker claiming that in the three years since December 2017, it had saved Massachusetts customers between approximately $ 180 million and $ 360 million in commissions.
Robinhood also alleged that “to Robinhood’s knowledge,” the securities regulators did not speak “to a single Robinhood employee during their investigation” or request “key documents” on issues such as technology disruptions and approval. of options. For this reason, Robinhood stated, the regulators’ complaint “was fundamentally at odds with the facts.”
Write to Caitlin McCabe to [email protected]
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