• Robinhood was subpoenaed by the SEC in February over custody issues and cryptocurrency listing
  • The NASAA investigation stemmed from platform outages in March 2020
  • The NASAA said Robinhood committed six violations

Robinhood Markets Inc., an American financial services company, reached a $10.2 million settlement with state securities regulators for allegedly "failing investors."

"The North American Securities Administrators Association (NASAA) today said Robinhood Financial LLC will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors," state securities regulators said in a press release titled, "State Securities Regulators Announce $10 Million Settlement with Robinhood for Failing Investors."

The settlement stemmed from a multi-state investigation conducted by authorities in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas over allegations that Robinhood caused harm to investors by failing to oversee technology, which caused outages and prevented millions from trading in March 2020. It was the time when "hundreds of thousands of investors were relying on the Robinhood app to make trades," NASAA claimed.

Aside from that, state securities regulators also discovered deficiencies in Robinhood's review and approval process for margin accounts.

The NASAA also found "weaknesses in the firm's monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping."

NASAA president Andrew Hartnett said that the settlement reflects multi-state efforts to work together to benefit the investors. "Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies," he said.

The American financial services company, according to the NASAA committed six violations, which include "negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads; failure to have a reasonably designed customer identification program; failure to supervise technology critical to providing customers with core broker-dealer services; failure to have a reasonably designed system for dealing with customer inquiries; failure to exercise due diligence before approving certain option accounts; and failure to report all customer complaints to FINRA and state securities regulators, as may be required."

Robinhood Markets deputy general counsel and head of government affairs Lucas Moskowitz said the company is resolving the issue and would like to move forward.

"The settlement relates to past issues that Robinhood has since invested heavily in improving, including the launch of 24/7 chat and phone support, expanding our library of educational materials, and strengthening the way we supervise our technology," Moskowitz said, adding, "we remain focused on continuing to break down barriers to the markets for those who were previously kept out."

Robinhood was subpoenaed by the U.S. Securities and Exchange Commission (SEC) in February over custody issues and cryptocurrency listing.

The subpoena issued by the financial regulator is about the crypto broker's "cryptocurrency listings, custody of cryptocurrencies, and platform operations," Robinhood said in a regulatory filing in February.

The logo of Robinhood Markets, Inc. is seen at a pop-up event on Wall Street after the company's IPO in New York City