Crypto companies are continuing to take note of the changing regulatory landscape around them, and Robinhood (NASDAQ:HOOD) is no exception. In the last several years, the company has picked up significant scrutiny from regulators over its stock trading platform. Now, with Robinhood expanding out its crypto capabilities, the watchful eye of regulators are even more concentrated on the company. Today marks further evidence of this as the Robinhood crypto arm faces a sizable fine.
Today’s news doesn’t mark a shift in the association between Robinhood and regulators; the company has always had an adversarial relationship with the like of the Securities and Exchange Commission (SEC). In late 2020, the SEC charged the company with misrepresenting its source of revenue, fining the company $65 million. Robinhood failed to make known that its primary source of revenue is through its Payment for Order Flow (PFOF) trade execution method. Through this method, Robinhood is able to make its trades free, but it presents the company with an incentive to execute trades poorly in order to make more money.
The model, originated by none other than notorious Ponzi schemer Bernie Madoff, has made Robinhood the first choice in retail investing platforms. Though, it is now paying the price as the SEC continues to fine the company and weigh the possibility of banning PFOF.
Even outside of PFOF-centric complaints, regulators have found ways to inflict fines on the company. In June of last year, Robinhood received a $70 million fine — the largest ever — from the Financial Industry Regulatory Authority (FINRA). The fine stems from further misleading communications between the company and users, approving options trades when its internal systems were down.
Robinhood Crypto Faces Fines as Regulators Continue Crypto Crackdown
Robinhood’s crypto arm is a lot newer than the stock trading platform. But, today marks the first crypto-specific fine for the company. The charges come amid a period of increasing regulatory scrutiny by the U.S. over cryptocurrency projects and exchanges.
The New York State Department of Financial Services (NYDFS) is the newest body to inflict financial penalties on Robinhood. The NYDFS is forcing the company to pay a $30 million fine for failing to comply with anti-money laundering (AML) laws. The state requires companies to institute and maintain AML and cybersecurity programs.
NYDFS says that upon a review of Robinhood, it failed to find evidence that Robinhood maintained these programs. As a result, it is dishing out its first ever crypto-specific fine at a company. Of course, this comes at a period of rising attention toward crypto in general.
The SEC and the Department of Justice just charged a trio in the first crypto insider trading arrests in the U.S. This in turn has caused the SEC to probe Coinbase (NASDAQ:COIN), a company with close ties to the arrest. The probe adds to a growing list of companies facing SEC investigation, including Binance (BNB-USD) and Kraken.
This news isn’t glamorous for Robinhood. But, HOOD stock is not showing any signs of slowing down. The stock is up about 2% today as the news makes the rounds.
On the date of publication, Brenden Rearick 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.
