Robinhood (NASDAQ:HOOD) stock is catching flak on Wednesday as the company faces scrutiny for its “free share of stock” promotions.
For those that don’t know, Robinhood offers up free shares of stock to users for certain tasks. That includes when first signing up for an account, as well as when they refer friends, alongside other actions.
However, companies are starting to push back against this practice as it costs them money. That due to proxy statements these companies have to file concerning those free shares of stock. Some of them are even reaching out to the U.S. Securities and Exchange Commission (SEC) for help.
Patrick McEnan, CEO of Catalyst Pharmaceuticals (NASDAQ:CPRX), said the following in an SEC letter from June obtained by The Wall Street Journal.
“Catalyst has become aware that Robinhood has been giving away shares of Catalyst’s common stock at no charge as part of its promotional program. Catalyst believes that there are likely numerous companies facing this same issue, and that the costs of distributing materials to small stockholders under these circumstances is onerous and unreasonable.”
A previous rule from the SEC stopped the reimbursement costs that companies had to pay but only affected the New York Stock Exchange. That means that Robinhood isn’t under that rule. However, companies are now calling for another similar rule that would keep them from paying for those proxy statements.
Robinhood doesn’t appear too bothered by the idea of a wider-spread rule covering proxy statements. A spokesman for the company said such a change wouldn’t “impact us significantly.”
HOOD stock was down 2.1% as of Wednesday morning.
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On the date of publication, William White did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.