Robinhood HOOD, the beleaguered brokerage that attracted the attention of Gen Z investors, is facing more pain.
The company's cryptocurrency unit received a $30 million fine by New York's Department of Financial Services and has been accused of violating anti-money laundering and cybersecurity regulations.
Shares of Robinhood have fallen by 76.10% during the past year as the Gen Z investors it sought appear to have sustained significant losses when cryptocurrency prices plummeted while the stock market tanked on concerns of high inflation and fears of recession as the Federal Reserve raises rates.
Robinhood was trading at $9 at 11:30 a.m. ET, falling from its 52-week high of $85.
The New York State Department of Financial Services announced on Aug. 2 it issued its first enforcement in the crypto sector.
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Inadequate Staffing Alleged
The government branch regulates financial services and products and alleges that Robinhood Crypto's anti-money laundering and cybersecurity program lacked adequate staff and resources to address risks and also found "critical failures in RHC’s cybersecurity program."
Robinhood’s crypto division did not transition from a manual transaction monitoring system to one that has more resources for its user size and transaction volume, the New York State Department of Financial Services alleges.
The state regulator alleges that Robinhood Crypto also violated the law when it certified compliance with the department and breached consumer protection requirements when it failed to set up and maintain a phone number on its website dedicated for consumer complaints.
In addition to paying the fine, Robinhood Crypto needs to work with an independent consultant to evaluate its compliance with related regulations.
“As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” said NYDFS Superintendent Adrienne Harris.
Paid Other Fines
Robinhood has been under the scrutiny of regulators during the past couple of years and paid $135 million in fines. In 2020, the brokerage paid $65 million when the SEC said it mislead customers and paid a $70 million fine in 2021 when the industry's regulator, the Financial Industry Regulatory Authority, said it mislead customers and was responsible for outages.
The company said it has conducted “significant progress” in building its legal, compliance and cybersecurity programs, said Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement at Robinhood.
“We are pleased the settlement in principle reached last year and previously disclosed in our public filings is now final,” she said.
Since it was launched, Robinhood strived to democratize investing and attract a new generation of investors, but has been faced a slowdown in trading volumes affecting both the cryptocurrency market and the broader financial markets.
