SEC Is Examining Robinhood’s Trading Halts, Options Practices
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The Securities and Exchange Commission is investigating Robinhood’s options practices and its decision to restrict trading in certain stocks at the height of the GameStop mania last month, Robinhood said in a securities filing on Friday.
The trading platform — which is privately held but expected to go public this year— made the disclosures in an annual audit required of broker-dealers under the Securities Exchange Act of 1934.
Robinhood has drawn the ire of investors and some members of Congress over its decision starting on Jan. 28 to restrict buying of certain stocks including GameStop (ticker: GME), BlackBerry (BB), AMC Entertainment Holdings (AMC), and Bed Bath & Beyond (BBBY). The company has said it was forced to curb trading because of escalating financial demands from its clearinghouse.
Robinhood also faces several other inquiries and customer lawsuits that the company says could result in financial penalties.
State regulators and the Financial Industry Regulatory Authority, or Finra, are also looking into options trading on Robinhood and outages that users of the investment app experienced in March 2020. Robinhood is negotiating a settlement with Finra that could cost the company at least $26.6 million, the filing said.
The company’s options practices have been under the microscope since a 20-year-old named Alex Kearns killed himself last year after expressing distress about an options trade in his Robinhood account. Kearns’ family has filed a wrongful-death lawsuit against the company. Robinhood has said that it was “devastated” by Kearns’ death last June and that it was “committed to making Robinhood a place to learn and invest responsibly.”
The company is also dealing with a class-action lawsuit over “account takeovers,” where someone appears to have gained access to Robinhood accounts.
The trading restrictions that Robinhood imposed in January have led to 46 lawsuits, the company said. And a long list of agencies is looking into the issue, including “the United States Attorney’s Office of the Northern District of California, the SEC’s Division of Examinations, Finra, the New York Attorney General’s Office, other state attorneys general offices, and a number of state securities regulators,” the company said.
“Due to the very preliminary nature of all of these proceedings, we are unable at this time to estimate the likelihood or magnitude of any possible losses related to these matters,” Robinhood said.
Write to Avi Salzman at avi.salzman@barrons.com