Robinhood pays $65M to settle SEC charges for past “inferior” pricing execution, misleading customers

Robinhood raises $200M more at $11.2B valuation as its revenue scales

Robinhood did not admit or deny the SEC charges, per the government body.

Reached for comment, Robinhood’s Chief Legal Officer Dan Gallagher said via email that the $65 million settlement “relates to historical practices that do not reflect Robinhood today.” The company, in a somewhat rare on-the-record statement added that it has “significantly improved [its] best execution processes, and have established relationships with additional market makers to improve execution quality.”

Robinhood listed five execution venues in its most recent payment for order flow filings.

TechCrunch has covered Robinhood’s payment for order flow incomes in recent quarters, as the company has scaled both its userbase and trading volumes, generating growing revenue from how its customer orders are executed.

In Q2 2020, for example, Robinhood’s revenues from payment for order flow sources doubled to around $180 million from a Q1 2020 result of around $90 million. Of course, those numbers come several years after the quarters noted in the settlement announcement.

Update: It’s worth noting that the SEC news comes less than a day after the Massachusetts Securities Division filed a complaint against Robinhood, alleging that it “engaged in acts and practices in violation of the Act and Regulations by aggressively marketing itself to Mass investors without regard for the best interests of its customers and failing to maintain the infrastructure and procedures necessary to meet the demands of its rapidly growing customer base.”

The state is seeking censure of Robinhood, improvement to its governance, along with monetary restitution and other financial penalties. The Massachusetts complaint can be read here.

Impacts

Robinhood has had an explosive, if occasionally rocky year. The company has had bouts of downtime during key market moments, had to reform its options-trading service after the suicide of a user, and has seen growth from its incomes from order flow slow.

But despite those matters, the company’s 2020 trajectory has been little short of impressive. Its rapid revenue helped the company raise hundreds of millions of dollars this year at expanding valuations, and made Robinhood a 2021 IPO candidate.

It’s hard to imagine that today’s news will fuly derail Robinhood’s growth; if the charges had dealt with a historical period more close to the current day, perhaps the impact would be larger. Robinhood’s competitors — Public.com raised $65 million the other day — could capitalize on the news.