Robinhood Financial to pay $65 million to settle SEC charges of misleading customers

Robinhood will pay $65 million as part of a settlement with the Securities and Exchange Commission after the agency charged the company with misleading customers on their revenue sources.

The stock trading app was also charged with failing to seek the promised best execution of trades. The SEC accused the company of committing the misleading statements between 2015 and late 2018, according to a SEC statement Thursday.

The agency said Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website. The website did not disclose that its largest revenue source for making money was through payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as “payment for order flow," according to a statement by the SEC.

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"One of Robinhood’s selling points to customers was that trading was 'commission free,' but due in large part to its unusually high payment for order flow rates, Robinhood customers’ orders were executed at prices that were inferior to other brokers’ prices," reads the statement.

The order by the SEC found that the inferior prices led to the loss of $34.1 million for customers, despite Robinhood stating between October 2018 and June 2019 that its execution quality matched or beat that of its competitors.

“Robinhood failed to seek to obtain the best reasonably available terms when executing customers’ orders, causing customers to lose tens of millions of dollars,” said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement. “Today’s action sends a clear message that the Commission will not allow brokers to ignore their obligations to customers.”

“The settlement relates to historical practices that do not reflect Robinhood today," said Dan Gallagher, Chief Legal Officer at Robinhood. "We recognize the responsibility that comes with having helped millions of investors make their first investments, and we’re committed to continuing to evolve Robinhood as we grow to meet our customers’ needs.”

Follow Coral Murphy on Twitter @CoralMerfi

This article originally appeared on USA TODAY: Robinhood settles SEC charges of misleading customers for $65M