Key Insights
- Robinhood agreed to pay $7.5 million and reform practices to settle Massachusetts allegations it manipulated customers through video game-style trading features.
- Settlement requires stopping imagery tied to trade frequency.
- It resolves 2021 lawsuits over state’s fiduciary rule authority after Robinhood failed to contain breach impacting 117,000 MA residents.
BOSTON – Online trading platform Robinhood has agreed to pay a $7.5 million fine and reform digital engagement practices to settle Massachusetts’ allegations of manipulating customers through video game-like features, state securities regulators said on Thursday.
Robinhood consented to resolve complaints that it deployed unauthorized gambling-style techniques like digital confetti and scratch-off tickets to frequently push certain stock trades, according to the order filed by Secretary William Galvin.
The settlement follows Robinhood’s 2021 lawsuit attempting to block Massachusetts’ fiduciary rule imposing broker standards to prevent conflicts of interest. Courts upheld Galvin’s enforcement authority last August.
Under the consent order, Robinhood must cease imagery tied to trade frequency, push notifications highlighting speculative stocks lists, and features mimicking games of chance for Massachusetts account holders.
An independent consultant will also evaluate the remaining engagement tactics by the app popular among young traders. Robinhood neither admitted nor denied the state’s gamification allegations.
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In addition, regulators cited “serious cybersecurity issues” during a November 2021 data breach where an agent was tricked into downloading remote access software and exposing customer information.
Robinhood staff could not be reached for nearly an hour to report the breach, which impacted around 117,000 Massachusetts residents.
As part of a settlement ahead of a potential U.S. Supreme Court appeal deadline, Robinhood agreed to revamp cyber safeguards and drop lawsuits contesting the state enforcement action.
A Robinhood spokesperson did not immediately respond to a MarketsXplora request for comment.