Massachusetts Securities Regulators Anticipated to File Criticism Towards Robinhood

Robinhood, a digital funding platform that has inspired a brand new technology of traders to enter the markets, is a goal of an administrative grievance by the State of Massachusetts, in accordance to the WSJ.com

In accordance with the report, Massachusetts Securities Division mentioned that “Robinhood failed to guard its clients and their property, violating state legal guidelines and rules. Robinhood uncovered Massachusetts traders to “pointless buying and selling dangers” by “falling far wanting the fiduciary normal” adopted this 12 months that requires broker-dealers to behave of their purchasers’ greatest curiosity.”

Robinhood has emerged as a well-liked funding platform catering to a youthful demographic with the chance to buy fractional shares – commission-free – or spend money on fashionable cryptocurrencies. The Fintech’s low-cost strategy has rattled extra established buying and selling platforms comparable to Schwab and ETrade, compelling these corporations to compete with decrease prices and improved companies.

Earlier this 12 months, Robinhood added interest-bearing, FDIC insured accounts for money shortly seeing over 1,000,000 clients make the most of this function because it provides extra bank-like companies.

An announcement on the Robinhood website explains its mission:

“Earlier than the times of zero fee charges throughout the trade, Robinhood was based on the assumption that everybody ought to have equal entry to the monetary system, not simply the rich. We pioneered commission-free investing, constructing a mobile-first platform and making investing accessible by means of intuitive design, entry to information, and digestible monetary sources. 

Inventory possession has change into extra various than ever earlier than, and we’ve helped open up investing for thousands and thousands of individuals, notably newer generations (the median age of a Robinhood investor is 31).”

Over 13 million particular person accounts at the moment are lively on the platform.

The Massachusetts Securities Division has repeatedly focused extra progressive or various monetary companies corporations. Within the early days of funding crowdfunding, the Division was a daily critic. In December 2017, Secretary of the Commonwealth William F. Galvin, who leads the Securities Division, warned about “Bitcoin mania.”

The grievance in opposition to Robinhood is claimed to give attention to the “gamification” of investing that encourages use of the platform. The Division is claimed to allege that Robinhood allowed an investor with no funding expertise to finish over 12,700 trades in a interval of six months.

Moreover, Robinhood is claimed to permit choices buying and selling for customers with little expertise. The report additionally states:

“Like many brokerages, Robinhood makes cash by a apply known as fee for order circulate, sending buyer orders to buying and selling corporations in return for money funds. By encouraging inexperienced traders to repeatedly execute trades, “Robinhood prioritized its income over the most effective curiosity of its clients…”

The grievance is seemingly being filed to guard “younger” traders. Nearly 500,000 accounts are mentioned to be held by Massachusetts residents.