Finance

Robinhood reportedly facing complaint by Massachusetts regulators over risks to young users

Source: Robinhood

Massachusetts regulators will reportedly file a complaint against Robinhood on Wednesday citing an apparent failure by the company to act in the best interest of its users, according to The Wall Street Journal.

The regulators’ complaint will center on the trading app exposing users — often young and inexperienced — to “unnecessary trading risks,” the Journal reported after reviewing a final draft of the more than 20-page compliant.

“We have not seen the complaint, but we have and will continue to work closely and cooperatively with all of our regulators,” a Robinhood spokesman said in a statement to CNBC. “Robinhood has opened up financial markets for a new generation of people who were previously excluded. We are committed to operating with integrity, transparency, and in compliance with all applicable laws and regulations.”

Massachusetts’ complaint follows a reported investigation by the Securities and Exchange Commission in September.

Robinhood has pioneered the commission-free trading model since its founding in 2013, and has seen its user base explode amid the pandemic. In the first four months of the year alone, the company said it saw a record three million new customers as stocks slipped into a bear market. The app has drawn much attention from Wall Street, and stock swings in popular names like Tesla have since been attributed to these new investors in the market.

Robinhood said it saw 4.3 million daily average revenue trades, or DARTs, in June, outperforming all of the publicly traded, incumbent brokers. Robinhood’s DARTs in the second quarter more than doubled compared to the prior three months, according to the company.

This year’s success has also brought growing pains. Robinhood has experienced several outages, including a multi-day outage in March, leaving some clients unable to trade during a historic day for the markets.

In August the company announced a Series G funding round of $200 million, boosting its valuation to $11.2 billion. Robinhood is widely expected to go public in 2021, and has hired Goldman Sachs to lead its IPO preparations, according to Reuters citing sources.

Click here to read the original WSJ story.

– CNBC’s Kate Rooney contributed reporting.

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