Robinhood pays $65 million to settle SEC probe over misleading communications with customers

<p><img src="https://static2.businessinsider.com/image/5f4cf7e560bf1f00280796ca-1500/robinhood.png" border="0" alt="robinhood" data-mce-source="Robinhood"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul><li><strong>Robinhood agreed to pay $65 million to settle with the Securities and Exchange Commission over charges that the brokerage misled clients on its revenue from trades and the quality of its service.</strong></li><li><strong>The SEC alleged Robinhood made "misleading statements and omissions" about how it made money with market-makers. Robinhood, like other brokerages, sells its orders to high-speed trading firms for execution.</strong></li><li><strong>While Robinhood marketed its trades as commission-free and matching or exceeding its peers in quality, the brokerage provided inferior trade prices that cost clients tens of millions of dollars, according to a Thursday SEC <a href="https://www.sec.gov/news/press-release/2020-321">press release</a>.</strong></li><li><strong>The settlement relates to practices "that do not reflect Robinhood today," Dan Gallagher, the brokerage's chief legal officer, said in an emailed statement.</strong></li><li><strong><a href="https://www.businessinsider.com/'utm_source=markets&amp;utm_medium=ingest'utm_source=markets&amp;utm_medium=ingestutm_source=msn.com&amp;utm_medium=referral&amp;utm_content=msn-slideshow&amp;utm_campaign=bodyurl'utm_source=markets&amp;utm_medium=ingest">Visit the Business Insider homepage for more stories</a>.</strong></li></ul><hr><p>Robinhood agreed to pay $65 million to settle Securities and Exchange Commission charges that allege the discount brokerage misled customers on the quality of its trading service.</p><p>The regulator argued Robinhood made "misleading statements and omissions" about how it made money with high-speed trading companies, according to a Thursday <a href="https://www.sec.gov/news/press-release/2020-321">press release</a>. Like other brokerages, Robinhood sells its orders to trading firms for execution in a process known as "payment for order flow".</p><p>The SEC's order alleges the brokerage routinely provided inferior trade prices, even as&nbsp;Robinhood marketed its trades as commission-free and executed with quality that matched or beat peers. The second-rate prices have cost clients a total of $34.1 million even after accounting for the lack of commission fees, according to the SEC.&nbsp;</p><p><em><strong>Read more:</strong> <a href="https://www.businessinsider.com/stocks-to-buy-picks-electric-vehicles-ev-china-domination-ubs-2020-12" data-analytics-position="1" data-analytics-module="">Buy these 26 stocks poised to surge as China starts to dominate the electric-vehicle landscape, UBS says</a></em></p><p>"Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm," Stephanie Avakian, director of the SEC's Enforcement Division, said in a statement. "Brokerage firms cannot mislead customers about order execution quality."</p><p>The settlement ends a probe that examined Robinhood's omission of order-flow revenue on its website from 2015 to 2018. Robinhood resolved the probe without admitting or denying the SEC's charges.</p><p>The settlement relates to practices "that do not reflect Robinhood today," Dan Gallagher, the brokerage's chief legal officer, said in an emailed statement.</p><p>"We recognize the responsibility that comes with having helped millions of investors make their first investments, and we're committed to continuing to evolve Robinhood as we grow to meet our customers' needs," he added.</p><p><em><strong>Now read more markets coverage from Markets Insider and Business Insider:</strong></em></p><p><em><strong><a href="https://www.businessinsider.com/us-weekly-jobless-claims-885000-coronavirus-unemployment-benefits-economic-recovery-2020-12" data-analytics-position="2" data-analytics-module="">US weekly jobless claims post surprise increase to 14-week high of 885,000 as America's unemployment crisis continues</a></strong></em></p><p><em><strong><a href="https://markets.businessinsider.com/currencies/news/bitcoin-btc-price-23000-massive-rally-record-highs-cryptocurrency-market-2020-12-1029902545" data-analytics-position="1" data-analytics-module="">Bitcoin soars above $23,000 as mammoth 2020 rally drives new record highs</a></strong></em></p><p><em><strong><a href="https://www.businessinsider.com/stock-picks-to-buy-for-2021-top-earnings-growth-jpmorgan-2020-12" data-analytics-position="3" data-analytics-module="">JPMorgan says stocks are primed for sustained gains in a way they haven't been in yearsand identifies 43 names to buy for above-average earnings growth in 2021</a></strong></em></p><p><a href="https://markets.businessinsider.com/news/stocks/robinhood-65-million-settlement-sec-probe-misleading-statements-order-flow-2020-12-1029902927#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/economist-weighted-voting-could-help-save-us-democracy-2018-5">A top economist explains how weighted voting could change democracy</a></p>
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