Robinhood Crypto fined $30 million by New York regulator

Robinhood Crypto fined $30 million by New York regulator
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Robin Hood, self-proclaimed Democratized Finance App. accused for misleading and ripping off retail investors will have to cough up another $30 million to appease regulators. That brings the company’s total regulatory fines and settlement tab well over $100 million.

IN filing On Tuesday, the New York State Department of Financial Services ordered Robinhood’s cryptocurrency arm to pay the hefty fine and accused the company of “significant anti-money laundering, cybersecurity and consumer protection violations.” The financial blow marks the latest in a series of regulatory difficulties for the company in recent years and first cryptocurrency enforcement for New York regulatory authority.

While Robinhood is best known for its micro-stock trading service, appealing to casual investors, the company’s crypto division also manages the stock market which allows users to buy and sell cryptocurrency. NYDFS investigators, who began their initial investigation last March, claim Robinhood failed to maintain effective and compliant cybersecurity programs, violated reporting requirements and improperly certified compliance. The agency found “critical gaps” in the company’s cybersecurity program, which it said did not fully address “operational risks.” In addition to the penalty, Robinhood will be required to hire an independent consultant to conduct an assessment to determine the company’s compliance going forward.

“As its business grew, Robinhood Crypto failed to invest the appropriate resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant breaches of the Department’s Anti-Money Laundering and Cybersecurity regulations,” Adrienne, Superintendent of NYDFS Financial Services A. Harris said in a statement.

In response to Gizmodo’s request for comment, Robinhood’s associate general counsel for litigation and regulatory enforcement, Cheryl Crumpton, said the company was “pleased” to make the settlement final.

“We have made significant progress in building industry-leading legal, compliance and cybersecurity programs, and we will continue to prioritize this work to best serve our clients,” Crumpton said. “We continue to pride ourselves on offering a more accessible, lower-cost platform for buying and selling crypto, and we’re excited to continue growing our business responsibly with new products and services that our customers want.”

Unfortunately, NYDFS well it was only the beginning of Robinhood’s problems on Tuesday. Within hours of the global announcement, Robinhood CEO and founder Vlad Tenev posted a blog post announcing that the company is cutting about 23% of its workforce as part of a broader company reorganization. Tenev, referring to the recently out-of-work staff as “Robin Howdy”, said the dramatic layoffs would affect workers across the company, with operations, marketing and program management teams bearing the brunt.

The layoffs come about three months after Robinhood announced will move to cut 9% of its staff after a period of pandemic-fueled “hyper-growth”. Tenev says these cuts “didn’t go far enough.” The CEO said that rising inflation, mixed with a collapsing cryptocurrency market, has significantly reduced customer trading activity.

“Last year, we staffed many of our operational functions under the assumption that the increased retail engagement we saw with the stock and crypto markets in the COVID era would continue into 2022,” Tenev said. β€œIn this new environment, we are operating with more staff than necessary. As CEO, I endorsed and took responsibility for our ambitious staffing trajectory – that’s up to me.”

Robinhood was founded nearly a decade ago in 2013, but entered most people’s collective imagination only last year for its role as the primary vehicle for retail investors to pump Gamestop, AMCand other so-called meme-stocks. While some users walked away with millions during the trading frenzy, many others lost money. Robinhood pissed off some of its users when it stepped in stop trading of certain stocks, which prevented some users from selling until prices fell. Over the past year, the company has faced numerous regulatory complaints and investigations. Last June, the Financial Industry Regulatory Authority (FINRA) hit Robinhood with a $57 million fine, the largest fine ever imposed by the agency. Not long, Robinhood agree to pay the Securities and Exchange Commission $65 million to settle allegations that it misled customers by claiming it was a commission-free stock trading method.

Individual investors who were allegedly burned by Robinhood are also starting to see some gains. Earlier this year, a FINRA arbitrator ruled in favor of a 27-year-old truck driver named Jose Batista, who claimed he lost money after Robinhood implemented its trading restrictions. FINRA ordered Robinhood to pay the man $29,500 in restitution. However, Batista is far from alone. The Federal Trade Commission reported that it received 3,081 complaints involving Robinhood between 2020 and mid-2021. According to a Freedom of Information Act request filed by Gizmodo earlier this year.

“I understand that the market can be volatile, but this was Robinhood’s refusal to honor the trades of people who bought the stock legitimately,” said one user who claimed he was forced to sell at a loss due to Robinhood’s interference in a complaint . “Since Robinhood hasn’t responded to customer service emails or tweets or anything regarding this issue, I have to assume that Robinhood may do this in the future with any other stock they don’t want to pay out.”

Updated at 5:05 PM ET with additional news on workforce cuts.

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