Robinhood, a trading app that has encouraged a new generation of investors to participate in equity trading, may have to pay a fine due to undisclosed deals it had with outside firms, according to a report.
First reported by WSJ.com, Robinhood had been selling client data to high-speed trading firms. While a relationship like this is not illegal the fact that it did not fully disclose these relationships have crossed the line with the Securities and Exchange Commission (SEC). While many brokerages do the same, the probe may end in a $10 million fine for Robinhood – a penalty that may involve no concession of blame.
A Robinhood spokesperson told CNBC:
“We strive to maintain constructive relationships with our regulators and to cooperate fully with them. We do not discuss or comment on our communications with our regulators.”
Robinhood has emerged as a disruptive force in the online brokerage world compelling older firms to drop fees while providing similar services. Robinhood offers fractional share purchases alongside crypto investing appealing to a younger generation of investors. Some observers believe Robinhood is partially responsible for the booming stock market that has seen bulls drive indices higher and stocks like Tesla go hyperbolic – apparently untied to fundamentals. It has been reported that some hedge funds have leveraged Robinhood trading activity to tag along on community investment sentiment to help drive in-house returns.
Earlier this month, it was reported that Robinhood had raised $200 million in a Series D funding round thus the company should have sufficient funds on hand to cover any penalty assessed by the SEC.