Broke online brokerage Robinhood Financial is targeting young, inexperienced investors and forcing them to trade thousands on its platform, Massachusetts Securities regulators claimed in a lawsuit filed Wednesday.
Although Robinhood sees itself as a gateway to the stock market, the company claims to be using a “gaming strategy to manipulate customers” for further trading to increase its fees.
“For example, one such advertisement has a clip of a young adult saying, ‘I am a student of a broken college college and investments can help my future a lot,'” claims another young man. Adults say, ‘Before I started using Robinhood I knew nothing about investing. I set up my account and immediately had a free stock, so I was an investor right away. ‘
“Colored Confetti”
To propel customers of its platform into the business, Robinhood allows users to “rain down on their screens after making deals through colorful confetti,” according to court documents. “These and other tactics are Robinhood’s way of turning serious investments into the game,” Commonwealth Massachusetts Secretary-General Willian Galvin said in a statement. “These tricks are not only unethical, but also fall short of the standards we need in Massachusetts,” he said.
Robinhood did not respond to requests for comment. Robinhood’s attorneys did not respond to an email seeking comment.
The company allows users to transfer money from their bank account to a Robinhood account and then start buying and selling free stock. The app was launched in 2013 and now has over 130 million users. That includes about 500,000 users in Massachusetts with a combined wealth of 1. 1.6 billion, court documents say.
Massachusetts said in its complaint that Robinhood makes money through so-called “payments for order flows.” In that process, Robinhood takes the user’s stock order and sells it to a large brokerage firm that buys and executes it. Under this system, state regulators argue that the more businesses Robinhood’s users run, the more money the company earns from brokerage.
State regulators allege that Robinhood’s tricks resulted in hundreds of users trading thousands. “For example, Robinhood allowed a customer with no investment experience to trade more than 12,700 in just six months,” the lawsuit claims.
Gwyn Lwin is asking a state court to impose an unknown fine on Robinhood. Regulators also want the judge to order Robinhood to find an independent consultant to evaluate application and company policies.
String of negative propaganda
The Massachusetts lawsuit follows a spate of recent negative publicity for Robinhood. Last year, a flaw in the company’s system allowed users to lend unlimited money for business. Regulators in Massachusetts also drew attention to the large outages the app experienced earlier this year.
Robinhood’s platform crashed in March, temporarily preventing users from accessing their funds. On the same day, the Dow Jones Industrial Average recorded a historic one-day historical growth of about 1,290 points. Federal regulators are now investigating why the outage occurred, Bloomberg reports.
In June, a Robinhood user in Illinois died by suicide after an error in his account resulted in a negative 7 730,000. October In October, unknown accounts were hacked and users complained that they would not be able to access Robinhood customer service to fix their problems.
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