Robinhood, facing Ire on many fronts, defends its application with regulators

In a 50-page response, Robinhood called the allegations false and the complaint “misrepresents the Robinhood experience”.

Instead, Robinhood replied, it helped open the door for millions of people. He dismissed claims that brokerage gamifies investing, fails to maintain fluid tech operators, and allows clients to engage in riskier options trades without having the necessary qualifications. More so, Robinhood said, the things he’s been criticized for by regulators are legal.

“It’s legal for customers to choose to receive notifications on their phones, sign up for waitlists and receive free actions. App features such as digital confetti are legal, ”Robinhood said in its response. “It is also legal for these clients to trade options and for Robinhood to approve clients for options trading based on their previous experience.”

He continued, “And it’s legal for Robinhood to have an app that has, on isolated instances, experienced temporary outages. All websites and applications are susceptible to failure, and many brokerage firms experience this. “

A spokeswoman for William Galvin, the secretary of the Commonwealth of Massachusetts, whose office filed the administrative complaint in December, declined to comment on Robinhood’s response, saying it was under review. She added that the office is still confident in her complaint “and recent events have not changed that.”

In just over a month, a lot has changed for online brokerage, where millions of users have flocked in recent years to make free transactions. In addition to the Massachusetts accusations, Robinhood is now under close scrutiny from individual investors and members of Congress, who have accused the company of preventing users from capitalizing on a crazy week of trading. As of Thursday, Robinhood was one of the many brokerages that limited trading on hot stocks, including GameStop. Corp.

and AMC Entertainment Holdings Inc.

Behind the scenes, Robinhood was quickly setting up an infusion of more than $ 1 billion to help the company meet the growing demand for its cash flow resulting from the frenzy of trading.

In Friday’s response to the Massachusetts case, the firm also took issue with claims it does not meet the state’s recently adopted ‘fiduciary standard’ which requires brokers to act in the best interests of clients. . The accusations revolved around the tactics the company uses to retain customers, saying it “encourages customers to use the platform constantly” through what it calls “gamification.”

Robinhood argued that the fiduciary rule does not apply because, according to the brokerage house, it is only relevant when a broker-dealer gives a client a recommendation or provides investment advice. Robinhood said in its response that its clients make their own business decisions. He added that the lists offered, such as the 100 most popular stocks, are the same for all customers and do not target any specific customer or group. He also denied having “gamified” the investor experience and said that criticizing the functionality of applications such as confetti “reflects a distinctly outdated view of communication in the digital age.”

Robinhood has long prided itself on “democratizing” markets – and its moves this week to restrict trade were seen by some as going directly against its mission. In its response on Friday, Robinhood reiterated this idea to regulators, with the broker saying that in the three years since December 2017, it has saved Massachusetts clients between around $ 180 million and $ 360 million in commissions.

Robinhood also alleged that “to Robinhood’s knowledge”, securities regulators have not spoken “to a single Robinhood employee during their investigation” or requested “key documents” on matters such as technology failures and approval of options. For this reason, Robinhood said, the regulators’ complaint was “fundamentally at odds with the facts.”

Write to Caitlin McCabe at [email protected]