The bad times continue to roll on for online brokerage app Robin Hood as the state of Massachusetts seeks to revoke its broker-dealer license. State regulators state the company targets inexperienced investors to make risky trades with no limits and seeks to charge Robin Hood.
In response, Robin Hood has filed a lawsuit in Boston which states the standard of conduct for broker-dealers like itself violates state and federal law.
The Case Against Robin Hood
Massachusetts Secretary of State Bill Galvin, who is also the state’s top securities regulator, accuses Robin Hood of using aggressive tactics to bring in young and inexperienced investors and not preventing platform outages. In an interview on CNBC’s Squawk Alley, Galvin says “The worst aspect of what they do clearly is the way they are gamifying the idea of investing” and that “this is a very reckless company…”
Galvin actually announced the case back in December of 2020, but only recently called to revoke their license after Robin Hood filled the lawsuit on April 15.
Robin Hood released a statement on their official blog calling the move “elitist and against everything we stand for” and also states that the company filed a complaint and motion to prevent the Massachusetts Securities Division from going through with their case. The lawsuit argues Galvin doesn’t have the authority to override a state court decision that says brokerage firms like Robin Hood aren’t considered fiduciaries of their customers.
Back in September, Massachusetts put in a new fiduciary rule that raised the standard for investment advice from brokers; a rule Robin Hood states goes against the SEC’s (Securities and Exchange Commission) own rule for governing brokerage firms.
A Rocky Year
2021 has been a pretty rocky year for Robin Hood, starting when the company put in restrictions that prevented users from trading GameStop stock during the craze earlier in the year. The move to restrict users from trading was so controversial and hated that the CEO of Robin Hood was brought in to explain what happened in a congressional hearing.
Now a new controversy has popped up with Robin Hood traders slamming the app when its cryptocurrency platform got hit with a major outage in the middle of a Dogecoin rally.
On their official Twitter, Robin Hood said their app was “experiencing issues with crypto trading” right in the middle of Dogecoin having a record-breaking where it reached more than $0.30 a coin Thursday night (Dogecoin is currently selling for $0.34 at the time of this writing). Commenters were not having it with one person on Twitter saying “How convenient. Robinhood always has ‘issues’ when their customers are making money.”
— Ross Anthony (@Ross_Swim14) April 16, 2021
Robin Hood managed to restore its crypto trading function by 11:46 pm Thursday night and also denied allegations it was placing restrictions on Dogecoin trading with a spokesperson stating “Unprecedented demand for Robinhood Crypto services created temporary issues with crypto trading. That’s it, plain and simple.”