Robinhood sees rapid growth even amid lawsuits and historic fine | Investing

The trading platform Robinhood, which has gained notoriety for allowing amateur stock investors to play the market, has grown rapidly to ...


The trading platform Robinhood, which has gained notoriety for allowing amateur stock investors to play the market, has grown rapidly to more than $80bn in customer assets, it revealed as it prepares to go public, even as it faces dozens of lawsuits and a historic fine over its business practices.

The app that has sent a newly empowered generation of investors to Wall Street saw its revenue soar 309% at the start of the year as a frenzy over so-called meme stocks shook the market.

The company revealed the revenue surge – from $277m in 2019 to $958m in 2020 in a filing with the US Securities and Exchange Commission Thursday as it prepares to sell its own stock on the Nasdaq for the first time. It plans to trade under the symbol Hood.

Robinhood’s initial public offering is set to be one of the most anticipated of the year, giving investors a chance to own part of a fast-growing company that has rocked the traditionally staid brokerage business. Since its launch in 2014, Robinhood’s popularity has forced rivals to get rid of commissions and to offer apps that make trading easy.

In early 2021, it shook the global markets after users gobbled up stocks in the ailing chain store GameStop, sending its share prices soaring and bankrupting major firms that bet against the company.

But as Robinhood has drawn in 18m funded accounts, with more than half its customers first-time investors, the company has also faced a mountain of criticism from regulators and users alike. It has agreed to pay more than $130m in recent years to settle accusations by regulators, with the most recent fine announced just before the filing.

The Financial Industrial Regulatory Authority (Finra) on Wednesday fined the platform $70m – the agency’s largest penalty ever – over “systemic supervisory failures” and hurting investors by giving them “false or misleading information”.

Finra accused Robinhood of allowing some users to make riskier trades than they were perhaps ready for, failing to make clear to customers that it makes much of its money by routing their trades to Wall Street firms taking the other side, and weak supervision of its technology leading to outages of its service.

Critics of Robinhood said the fine was not nearly enough. Senator Elizabeth Warren said in a tweet it was just the latest in a long line of actions that have not affected the way the company does business.

“Robinhood won’t clean up its act with slap-on-the-wrist settlements,” Warren said. “Our regulators need to show some backbone to hold Robinhood accountable.”

The company in February had to answer to lawmakers over the trading frenzy in early 2021 in a congressional hearing assembled by Maxine Waters and the House financial services committee.

In that hearing, the CEO, Vlad Tenev, was asked to answer for the short squeeze on GameStop and the suicide of Alex Kearns, a 20-year-old trader who mistakenly believed he had lost $730,000 on a trade. Waters said at the time there would be additional hearings on the matter in the future.

Robinhood also faces 49 class action lawsuits and three individual actions in federal and state courts relating to the early 2021 trading surge, it revealed in its filing. It also has received requests for information from the United States Attorney’s Office for the northern district of California (‘USAO’), the US Department of Justice, the SEC staff, the New York attorney general’s office, other state attorneys general offices and a number of state securities regulators. Many of these proceedings are ongoing, the filing said.

Despite these controversies, Robinhood’s revenue soared to $522m in the first three months of 2021, up from $128m a year earlier. It’s also coming off a profitable year. It had net income of $7m in 2020 after losing $107m in 2019.

Robinhood said in its filing the early 2021 incidents “resulted in negative media attention, customer dissatisfaction, litigation and regulatory and US congressional inquiries and investigations” and that it “cannot assure that similar events will not occur in the future”.

“Our brand and our reputation are two of our most important assets,” the filing said. “Our reputation, brand and ability to build trust with existing and new customers may be adversely affected by complaints and negative publicity about us, our platform, and the customers that utilize our platform.”



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Newsrust - US Top News: Robinhood sees rapid growth even amid lawsuits and historic fine | Investing
Robinhood sees rapid growth even amid lawsuits and historic fine | Investing
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