- The trading and investing app Robinhood is facing regulatory scrutiny from federal and state agencies and a slew of customer lawsuits.
- Robinhood raked in $1.26 billion in private funding last year and is said to be eyeing an IPO this year.
- The startup has beefed up its legal team, which includes SEC veterans and seasoned litigators.
- Visit Business Insider’s homepage for more stories.
The fintech startup Robinhood has been growing like crazy amid the pandemic. The trading app’s revenue from routing trades roughly doubled from the first quarter of 2020 to the second. And as its valuation skyrocketed, Robinhood has been hiring software engineers, data analysts, and product managers. And lawyers.
The investing and trading app has onboarded millions of casual traders with its low-friction, no-fee trading model. But it has also drawn scrutiny from federal and state regulators who accuse Robinhood of deceiving customers and using a “gamified” product design that leads them to make risky trades they don’t fully understand.
In December, Massachusetts securities regulators lodged a complaint against Robinhood, alleging that it aggressively marketed to inexperienced investors and exposed them to “unnecessary trading risks. The same month, Robinhood agreed to pay $65 million to settle an investigation from the SEC, which accused the company of making “misleading statements and omissions” about its revenue. Robinhood declined to comment on ongoing legal matters.
Read more: The inside story of how Robinhood blew a huge launch so badly that Congress got involved
The new hires also come as Robinhood is said to be eyeing to go public in the new year. The company has picked Goldman Sachs for an IPO that could value it at more than $20 billion, according to Reuters, nearly double its current valuation of $11.2 billion. While the recent scandals haven’t scared off investors — Robinhood nabbed $1.26 billion in private funding in 2020 — these legal hurdles aren’t likely to dissipate without a fight.
Over the past year, Robinhood has hired lawyers and some of the most well-connected law firms in the US to negotiate deals, scale up its compliance efforts, and spar with regulators whose investigations and penalties could hinder its ambitions for growth. The company is also looking to make more hires, including lobbyists and lawyers who can advise on transactions, fundraising and the process of going public, job listings show.
Read more:Robinhood rival Webull is plotting an aggressive growth push
Daniel Gallagher Jr.
A former SEC commissioner under Barack Obama, Gallagher was tapped by Robinhood as its chief legal officer last May. During his tenure as commissioner, from 2011 to 2015, he championed corporate governance reform and, in the language of his SEC bio, advocated against the “encroachment” of bank-regulatory measures into the capital market. Gallagher held several other positions on the SEC before being appointed commissioner, including deputy director and coacting director of the division of trading and markets.
Gallagher also has significant regulatory experience in the private sector. In 2016, he joined Patomak Global Partners, a financial-services consultancy that provides industry and regulatory expertise, as its president, before becoming the top lawyer at the pharmaceutical company Mylan — now Viatris — in 2017. He rejoined WilmerHale, where he was a partner before his nomination to the SEC, in September 2019 as its deputy chair of the law firm’s securities department.
Lucas Moskowitz
Moskowitz, who was named Robinhood’s vice president and deputy general counsel in August, has worked closely with Gallagher since they were both in private practice at WilmerHale. Moskowitz held several positions at the SEC, including a stint in 2012 as one of Gallagher’s lieutenants and serving as chief of staff under former SEC chairman Jay Clayton from 2017 to 2019.
According to his LinkedIn, Moskowitz also joined Gallagher at Patomak Global Partners in 2016 as its managing director. He then rejoined WilmerHale’s securities group alongside Gallagher in 2019.
As Robinhood’s deputy general counsel, Moskowitz will be overseeing litigation, regulatory, and government affairs and be reporting to Gallagher.
Christina Lai
Holding the titles of vice president, deputy general counsel, and corporate security at Robinhood, Lai will oversee and grow the company’s legal group, according to the company’s announcement. She will also be reporting to Gallagher.
Before joining Robinhood in July, Lai held similar positions at Applied Materials, a materials-engineering company that serves the solar energy industry, where she worked from 2014 to 2020. The former Latham lawyer also worked in house at Yahoo from 2003 to 2014.
John Markle
Markle was hired in November as vice president and deputy general counsel for regulatory and product at Robinhood, which he joined after spending more than 19 years in house at TD Ameritrade ahead of the closure of its $26 billion sale to Charles Schwab & Co., as reported in Bloomberg Law.
Before his lengthy tenure at TD Ameritrade, Markle spent six years at the SEC, according to his LinkedIn profile.
Janet Broeckel
Robinhood’s new head of litigation as of December, Broeckel brings 15 years of experience as managing director and lawyer for Goldman Sachs. As the company’s associate general counsel and vice president, she’ll be heading its litigation matters and regulatory enforcement and investigations.
She previously served as senior counsel of the SEC from 1990 to 1994, before moving into private practice, where she spent 11 years, according to her LinkedIn profile. As litigation partner at Pillsbury Winthrop LLP, Broeckel drew on her government regulatory experience, working on matters related to SEC regulatory-enforcement proceedings, white-collar securities, and securities class-action defense.
Erica Crosland
Crosland joined Robinhood as its principal counsel for litigation and enforcement in December, according to her LinkedIn profile. Crosland is another alum from WilmerHale, where she spent more than eight years as a securities-litigation and enforcement counsel, according to Bloomberg Law.
Andrew Ceresney, Julie Riewe, Maeve O’Connor, and Elliot Greenfield
These lawyers from Debevoise & Plimpton have helped Robinhood with two major legal challenges. In December, the company agreed to pay $65 million to settle the SEC’s claims that it misled customers by giving them worse prices than competing brokerage platforms. It’s also facing a raft of litigation relating to the outage that struck the platform as stock prices plunged in March.
The company had two former senior SEC officials at Debevoise advising it in its negotiations with their former agency. Andrew Ceresney led the SEC’s enforcement division from 2013 to 2017 — while the agency itself was being led by Mary Jo White, another Debevoise partner — and Julie Riewe cochaired the enforcement division’s asset-management unit for three years that party overlapped with Ceresney’s tenure.
Court records indicate Ceresney recently represented McKinsey & Co. in a dispute with Jay Alix, the founder of AlixPartners, over alleged conflicts of interest, and Ripple Labs and its CEO Brad Garlinghouse in a civil lawsuit. And in 2019, Riewe represented Mylan, where Gallagher led the legal department, in a $30 million SEC settlement.
Two other Debevoise partners, Maeve O’Connor and Elliot Greenfield, have been advising Robinhood in a group of lawsuits that traders filed over its March trading outage. The users who sued said they lost thousands of dollars over Robinhood’s negligence. O’Connor, a leader of Debevoise’s securities and insurance litigation teams, has represented Prudential Financial and Metlife in numerous big cases. She also helped members of Dell’s board of directors fend off shareholder suits over its 2013 sale to private owners. Greenfield has worked on some of those same matters, as well as on numerous disputes for Tribune Media Co.
Neal Sullivan
Robinhood hasn’t stinted in its other headline-grabbing regulatory fight, either. Massachusetts authorities accused Robinhood last month of engaging in “unethical or dishonest” conduct and of breaching the heightened fiduciary standards that broker-dealers like Robinhood have been subject to in Massachusetts since early 2020.
Representing Robinhood in the dispute is Neal Sullivan, who leads the securities regulation and enforcement practice at Sidley Austin and is a go-to lawyer for broker-dealers and accountants facing government scrutiny. His team is advising Morgan Stanley on the regulatory aspects of its merger with E-Trade, and Sullivan represented a Chinese affiliate of KPMG in a dispute with the SEC in 2013-14.
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