Robinhood is Now Facing a New Trading Investigation
Robinhood (NASDAQ:HOOD) is now facing a new trading investigation after the company won its case over the manipulative ‘meme stock’ halts.
The 11th U.S. Circuit Court of Appeals in Atlanta ruled 3-0 in its favor regarding the trading restriction of 13 meme stocks back in 2021.
These stocks included AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), and Bed Bath & Beyond (OTCMKTS:BBBY), among others.
In a proposed class action, shareholders of the 13 stocks alleged that they suffered damages because they were restricted from trading.
Now Robinhood Markets says it’s being investigated for its trading execution, the latest in a string of regulatory and legal proceedings faced by the online brokerage.
“The New York Attorney General is conducting an investigation into brokerage execution quality. We are cooperating with this investigation,” Robinhood said in a recent filing.
Robinhood previously settled a New York state probe into its cybersecurity and anti-money-laundering practices and paid a $30 million fine. The company has also:
- Paid $65 million to settle a Securities and Exchange Commission charge that it didn’t sufficiently disclose its business deals with high-speed trading firms
- Paid $70 million to settle multiple allegations from the Financial Industry Regulatory Authority, including investigations into options trading and technology outages.
- Agreed to pay $10 million to resolve a multistate investigation into allegations that it harmed retail investors, including by failing to supervise technology that resulted in outages and locked millions out of trading in March 2020.
On social media, retail investors argue that Robinhood’s victory over the ‘meme stock’ halts has been a major injustice to investors worldwide.
“The online brokerage has faced heightened regulatory scrutiny during the past several years. In March 2020, several service outages prevented its customers from trading. Then, in early 2021, the so-called meme-stock frenzy spurred the brokerage to restrict trading,” says Bloomberg.
Robinhood said in the Thursday filing that it’s paid about $175 million in the past few years to resolve actions brought by the Securities and Exchange Commission, the Financial Industry Regulatory Authority and several state regulators.
Other Recent Robinhood News
Robinhood active users have now declined by a whopping 3,200,000 this year according to the company’s latest report.
As a result, transaction-based revenue declined 5% in the second quarter.
Monthly active users also decreased to 10.8 million, one million fewer compared to the previous quarter and 3.2 million fewer than the year prior per Reuters.
Earnings per share in the second quarter were $0.03, beating analysts’ average estimate of a loss of $0.01, according to Refinitiv data.
“We’ve been talking about for the last several quarters how we want to be lean and scrappy from a cost perspective, and we’ve been keeping our eye on that very closely,” Jason Warnick, Robinhood’s chief financial officer, told reporters.
Robinhood (NASDAQ:HOOD) stock fell more than -6% on Thursday based the decline in users report.
“The company reported higher second-quarter revenue on Wednesday as interest rates continued to increase the online brokerage’s interest income, achieving profitability for the first time as a public company even as it saw fewer users.
Net interest revenue soared 243% to $442 million in the second quarter compared to a year earlier, as the brokerage’s margin investing business benefited from the U.S. central bank’s monetary policy tightening campaign to combat decades-high inflation.”
Mizuho Americas Senior Financial Technology Analyst Dan Dolev says Robinhood could be the next Charles Schwab.
“I’m actually seeing results being very, very strong and, to me, that’s more important than a data point on users,” Dolev says of Robinhood’s second quarter results.
Also Read: Robinhood and Citadel Colluded Night Before Trading Restrictions
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