David G. Tech 12.17.2020 13:Dec PM EST

Robinhood Settles SEC Charges Through 65 Million USD Fee

Robinhood App — Photo : Screenshot from Andrei Jikh's Official YouTube Channel

Financial services and stock trading free app Robinhood was reported that it has agreed to pay an amount of 65 million USD in which they would settle the charges from the Securities and Exchange Commission (SEC) that the company has misled their users and customers regarding their payment being done, along with the allegations that the company did not meet the what has stated within their terms and conditions.

The SEC confirmed the news about where the parties involved has already reached an agreement. The company of the app will then give the 65 million USD fine, yet they did it without admitting nor denying what was thrown upon them by the SEC.

The History of Robinhood About Stocks - Up Until the Latest One

Through the past years, an enormous number of investors has been in line with the company at first, but then eventually turned on them after being deceived through a sales pitch yet it has no trading fees attached on it. The recent charges that were announced this Thursday do apply with the disclosures brought upon by the company which was created and effective way back 2015 to late 2018, according to the regulator.

The statements were dubbed as misleading, while also being catered with the omissions in line with customer interaction and communications at the same time. This includes various website FAQ pages where it was reported that it has shown how they make money from the main source of revenue by the app, where it generates a large and big sum of value.

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It lists payments from trading firms where in exchange it would allow Robinhood to send the customers' orders to the firms, then it would lead to the execution of those. SEC then told it was coined as the "payment for order flow."

SEC then charged the company with accusations of "repeated misstatements" which has failed to secure and disclose the receipts of payments by the firm to the trading firms being involved on the process. Director of the enforcement division of SEC Stephanie Avakian mentioned that Robinhood had provided such misleading information to the customers regarding what should have been the true costs of the option to choose to trade along with the firm itself. She also added that brokerage firms do not have the right to mislead their customers and users about the quality of their order execution.

Robinhood's "Commission-Free Trading"

The trading app was best known for the debut of the "commission-free trading", wherein the app itself heavily depends and relies on the payment for order flow as their main profit engine and income generator in line with those of the commissions. The company was even reported to gain an amount of 18 million USD in the second quarter, all by off trades that has happened during only that span of time indicated.

The company, however, defended its policies through a representative who appeared for Robinhood. The representative claimed that it did not create any allegations being thrown on them especially those involving investment recommendations.