- The Securities and Exchange Commission and Financial Industry Regulatory Authority are investigating Robinhood and its handling of an early March service outage, Bloomberg reported Monday.
- The brokerage made headlines after its trading platform shut down for the entirety of March 2 and some of March 3, leaving investors unable to cash in on a market upswing.
- The regulatory bodies are particularly interested in Robinhood’s lack of customer response during the outage, according to Bloomberg. When the brokerage’s help center also shut down, customers flooded the SEC with complaints.
- Regulators have privately said they’ve felt like Robinhood’s secondary customer support outlet, sources told Bloomberg.
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Robinhood is under investigation by the Securities and Exchange Commission and the Financial Industry Regulatory Authority over its handling of a March outage, Bloomberg reported Monday.
The discount brokerage caught flak in early March after its trading service shut down for more than an entire trading day. Investors were unable to gain access to the company’s help center, website, or mobile application.
The outage kept clients from securing profits on March 2 as coronavirus-linked volatility pushed stocks higher. The S&P 500 closed up 4.6% that day, while the Dow Jones industrial average gained nearly 1,300 points, or about 5.1%.
Robinhood’s app faced downtime and slowed performance the following day, though not through the entire trading session.
The investigations arrive as Robinhood transitions from a brokerage-industry upstart to a leading player. The company added more than 3 million accounts as of May, half of which belonged to first-time investors. Robinhood’s daily average trades in June reached 4.31 million and beat legacy firms including TD Ameritrade, Charles Schwab, and E-Trade. The rapid growth helped boost Robinhood’s total valuation to $11.2 billion as of mid-August.
Yet the company’s ascension in recent months has also led to increased scrutiny from regulatory bodies. The SEC and FINRA are particularly interested in Robinhood’s lack of a timely response to customers affected by the March outages, sources familiar with the probes told Bloomberg.
Robinhood cited infrastructure “instability” for March’s system failure and noted that funds and personal information were safe throughout the outage.
“When it comes to your money, issues like this are not acceptable. We realize we let you down, and our team is committed to improving your experience,” Robinhood wrote in an email the day after the March 2 issue.
The company did not immediately reply to a request for comment.
The brokerage’s setbacks have also driven a great deal of investors’ ire to regulatory agencies. Since Robinhood’s outages left customers without access to its helpline, clients frequently banded together to flood government offices with complaints.
Federal Trade Commission comments obtained by Bloomberg show the agency receiving 473 reports on Robinhood from January to mid-July. By comparison, the FTC received 126 reports for Charles Schwab, 111 for E-Trade, and 69 for Fidelity over the same period.
Regulators have privately said they feel they’ve become Robinhood’s secondary customer service outlet, sources familiar with the talks told Bloomberg.
Robinhood seems to have heard such complaints. The company plans to hire hundreds more customer service representatives and has already sped up response times and bolstered its trading platform, according to an August 11 blog post.
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