Robinhood Financial online brokerage is aimed at inexperienced young investors and pushes them to make thousands of transactions on its platform, Massachusetts securities regulators said in a lawsuit filed Wednesday.
Although Robinhood is marketed as a gateway to the stock market, the company uses “game strategies to manipulate customers” to operate more in order to increase its commissions, according to demand.
“For example, one of these ads contains a clip of a young adult saying,‘ I’m a broken college student and investments can help my future tremendously, ’” the lawsuit says. “In another example, another young adult says,‘ I didn’t know anything about investing before I started using Robinhood. As soon as I set up my account, I had free shares, so I was immediately an investor. “
“Color confetti”
To convince customers of its platform to negotiate, Robinhood rewards users “with colorful confetti that rains down their screens after running operations,” according to court documents. These and other tactics are Robinhood’s way of turning serious investment into a game, Massachusetts Commonwealth Secretary Willian Galvin said in a statement. These tactics “are not only unethical, but they are also well below the standards we demand in Massachusetts,” he said.
Robinhood did not respond to requests for comment. A Robinhood attorney did not respond to any email search messages.
The company allows users to transfer money from their bank account to a Robinhood account and then start buying and selling shares for free. The app was launched in 2013 and now has over 13 million users. This includes about 500,000 users in Massachusetts with combined assets of $ 1.6 billion, according to court documents.
Massachusetts said in its complaint that Robinhood makes money through the so-called “order flow payment.” In the process, Robinhood takes a user’s stock order and sells it to a larger brokerage firm that executes the purchase. Under this system, state regulators argue that the more business Robinhood users run, the more money the brokerage company receives.
State regulators allege that Robinhood tactics caused hundreds of users to conduct thousands of operations. “As an example, Robinhood allowed an inexperienced client to invest in more than 12,700 transactions in just over six months,” the lawsuit states.
Galvin is asking a state court to demand an undisclosed amount of fines from Robinhood. Regulators also want a judge to order Robinhood to seek an independent consultant to evaluate the company’s application and policies.
Negative advertising chain
Massachusetts demand follows a rash of negative publicity lately for Robinhood. Last year, a problem with the company’s system allowed users to borrow an unlimited amount of money to negotiate. Massachusetts regulators also noted the major disruptions the application experienced earlier this year.
The Robinhood platform crashed in March, temporarily preventing users from accessing its funds. The cut occurred on the same day that the Dow Jones Industrial Average made a historic one-day gain of approximately 1,290 points. Federal regulators are now investigating why the disruption occurred, Bloomberg reported.
In June, an Illinois Robinhood user died by suicide after his account erroneously showed a negative $ 730,000. In October, an undisclosed number of accounts was hacked and users complained that they could not reach Robinhood customer service to fix the issues.