Robinhood Markets Inc. told regulators in Massachusetts on Friday that they do not exploit inexperienced customers, limiting it to a wild week during which the popular online brokerage created a furious rage because they did just the opposite: to stand in the way of customers .
Robinhood responded late Friday to a December complaint from security regulators in Massachusetts, though it still reiterated the strong setback in its decision to restrict customers from trading this week. The state has accused Robinhood of failing to protect its customers and their assets by aggressively marketing to inexperienced investors and failing to put in place controls to protect them.
In a 50-page response, Robinhood declared the allegations untrue and the complaint “a misrepresentation of Robinhood’s experience.” ‘
Instead, Robinhood opposed, helping to invest the door to millions of people. It rejects claims that the brokerage compares investments, fails to maintain smooth tech operators and allows clients to trade more risky options without having the necessary qualifications. Moreover, Robinhood said, the objects for which it is criticized by regulators are legal.
‘It’s legal for customers to choose to receive notifications on their phones, join waiting lists and receive free shares. App features such as digital confetti are legal, ”Robinhood said in his response. “It is also legal for clients to trade options, and that Robinhood approves clients for trading options based on previous options.”
It continued: ‘And it’s legal for Robinhood to have an app that has experienced temporary interruptions in some cases. All sites and programs are susceptible to interruptions, and many brokerage firms experience this. ”
A spokesman for William Galvin, the secretary of state for Massachusetts, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response and said it was being reviewed. She added that the office is still confident in its complaint “and that recent events have not changed that.”
In just over a month, much has changed for online brokerage, where millions of users have flocked in recent years to trade for free. In addition to the accusations of Massachusetts, Robinhood is now being scrutinized by individual investors and members of Congress, who have accused the company of preventing users from taking advantage of a wild week of trading. On Thursday, Robinhood was one of the many brokers that restricted hot stock trading, including GameStop. Corp.
and AMC Entertainment Holdings Inc.
Behind the scenes, Robinhood quickly put together an infusion of more than $ 1 billion to help the company meet the rising demands on its cash due to the insane trading.
In Friday’s response to the Massachusetts case, the company also disputes allegations that it does not meet the ‘trust standard’ recently adopted by the state, which requires brokers to act in the best interests of clients. The allegations focused on the tactics the company uses to keep customers busy, claiming that it ‘encourages customers to use the platform continuously’ through ‘gamification’.
Robinhood argued that the trust rule does not apply because, according to the brokerage, it is only relevant if a broker gives a recommendation to a client or gives investment advice. Robinhood said in its response that its customers make their own trading decisions. It added that the lists offered, such as the 100 most popular stocks, are the same for all customers and are not aimed at any specific customer or group. It also denied that it ‘gamifies’ the experience for investors, saying that criticism of app features such as confetti’ reflects a clearly outdated view of communication in the digital age.
Robinhood has long been proud of the ‘democratization’ of the markets – and this week’s steps to restrict trade are seen by some as a direct endorsement of its mission. In its response Friday, Robinhood reiterated the idea to regulators, with the brokerage claiming that in the three years since December 2017, it has saved between $ 180 million and $ 360 million in commissions in Massachusetts.
Robinhood also claimed that security regulators, to Robinhood’s knowledge, did not ‘speak to a single Robinhood employee during the investigation’ or ask for ‘key documents’ on topics such as technological disruptions and options approval. Therefore, Robinhood claimed that the complaints of the regulators were ‘fundamentally contrary to the facts’.
Write to Caitlin McCabe by [email protected]
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