London Daily

Focus on the big picture.
Thursday, Aug 27, 2026

SEC charges investment app Robinhood with misleading customers

SEC charges investment app Robinhood with misleading customers

Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC’s findings.
The Securities and Exchange Commission on Thursday charged Robinhood with deceiving customers about how the stock trading app makes money and failing to deliver the promised best execution of trades.

Robinhood agreed to pay a $65 million civil penalty, without admitting or denying SEC’s findings. The Silicon Valley startup, which has eventual plans to go public, has raised north of $1 billion in funding in 2020, lifting Robinhood’s valuation to $11.7 billion.

“Between 2015 and late 2018, Robinhood made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow,’” the SEC statement read.

“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,” the statement went on to say.

The millennial favored trading app is best know for pioneering the “commission free trading.” Robinhood, and the rest of the online brokerage industry, rely on what’s known as payment for order flow as their profit engine in lieu of commissions.

Taking payments for order flow from Wall Street firms is a controversial, but legal practice done by most electronic brokers, however Robinhood sticks out because it is the company’s biggest revenue source. Robinhood made $180 million off trades in the second quarter.

The SEC order found that Robinhood provided inferior trade prices that cost customers $34.1 million, even after considering the savings from not paying a commission.

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, Director of the SEC’s Enforcement Division. “Brokerage firms cannot mislead customers about order execution quality.”

Market makers, such as Citadel Securities or Virtu, pay e-brokers like Robinhood for the right to execute customer trades. The broker is then paid a small fee for the shares that are routed, which can add up to millions when customers trade as actively as they have this year.

Robinhood has experienced record growth in 2020 due to the unprecedented market volatility from the Covid-19 pandemic. Robinhood posted a record 3 million new customers in the first four months of 2020.

“The settlement relates to historical practices that do not reflect Robinhood today. 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,” Dan Gallagher, Chief Legal Officer at Robinhood told CNBC.

″We are fully transparent in our communications with customers about our current revenue streams, have significantly improved our best execution processes, and have established relationships with additional market makers to improve execution quality,” a Robinhood spokesperson told CNBC.

The SEC’s charges come after Massachusetts regulators filed a complaint on Wednesday against Robinhood, accusing the trading app of predatory marketing on inexperienced investors.

The complaint cites Robinhood’s “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.”
Newsletter

Related Articles

0:00
0:00
Close
The Secret Dolly Parton Kept Until Her Death: "She Was Much Sicker Than She Let On"
Raheem Sterling Charged With Dangerous Driving After Lamborghini Crash
Andy Burnham Drops Plan to Cap Political Donations
Conservative Leadership Contest Intensifies as Robert Jenrick Attacks Kemi Badenoch
French-Born Defence Secretary Wes Streeting Condemns Homophobic Abuse Since Taking Office
UK Government Delays Commercial Robotaxi Rollout in London Over Regulatory Gaps
NHS Complaints About Autism and ADHD Care Waiting Times Triple Over Five Years
UK Government Launches 10,000 Work Placements for Young People With Sainsbury's
NHS England to Offer Free At-Home Cervical Cancer Screening Kits
EU Biometric Border Checks Cause Delays of Up to Five Hours for British Travellers
US Imposes Economic Sanctions on UK-Based Protest Group Palestine Action
Two Planned UK Datacentres Could Produce More Annual Carbon Emissions Than ExxonMobil's Entire UK Operation
London Surgeons Complete First Artificial Intelligence-Assisted Brain Tumour Removal
UK Services Growth Rebounds as Consumer Confidence Reaches Two-Year High
Ofgem Confirms Four Percent October Energy Price Cap Increase for UK Households
Government Considers Insolvency Law Changes to Bring Thames Water Into Public Ownership
Andy Burnham Signs Artificial Intelligence Defence Pact During Visit to Kyiv
Church of England Faces Renewed Scrutiny Over Historical Safeguarding Failures
Reform UK Proposes £30 Tax Credit for Long HMRC Telephone Queues
Greater Manchester Secures More Than £100 Million to Upgrade Victorian Railway Stations
East Midlands Railway Urges Essential Travel Ahead of Bank Holiday Strikes
UK Economy Grows 0.4 Percent in Second Quarter as Global and Energy Pressures Weigh
UK Government and Sainsbury’s Launch Plan for 10,000 Youth Work Experience Placements
Scottish Government Plans Tighter Remote-Working Rules and Possible Voluntary Redundancies
Scottish Budget Faces More Than £700 Million Reduction After Tax Revenue Adjustment
Nearly 100 Labour MPs Press Andy Burnham to Back Electoral Reform Commission
UK Energy Price Cap Rises Four Percent to £1,723 as Middle East Conflict Drives Wholesale Gas Costs
Turnbull Warns AUKUS Could Leave Australia Without Promised Nuclear Submarines
California Billionaires Pour More Than $150 Million Into Fight Over Proposed Wealth Tax
German Broadcaster Goes Dark to Warn AfD Could End Its Saxony-Anhalt Service
Badenoch Plans Major Shadow Cabinet Reshuffle as Tories Struggle in Third Place
UK Government Demands Action Against Social Media Content Promoting Dangerous Driving
Labour Backbenchers Prepare Push for Electoral Reform Under Andy Burnham
Fire at Gatwick Airport Car Park Destroys 140 Vehicles and Cuts Local Power
UK Plans Voluntary Libido-Suppressing Medication Programme Across 20 Prisons
NHS England Launches Free Home Cervical Cancer Testing Kits Nationwide
Imperial College Study Warns North Sea Oil Projects Could Cause Hundreds of Billions of Pounds in Climate Damage
UK Inflation Rises to 2.9% as Middle East Conflict Pushes Up Energy Costs
Prime Minister Andy Burnham Visits Kyiv to Strengthen UK Support for Ukraine
Premier League Season Opens With Managerial Debuts and Dramatic Early Fixtures
England Cricket Drops Brydon Carse From Selection Pending Club Investigation
Graeme Dott Convicted of Child Sexual Abuse Offences in Scotland
Protesters Occupy British Aircraft Parts Factory Over Alleged Military Links to Israel
More Than 100 Former British and French Diplomats Call for Sanctions on Israel
Ipsos Poll Shows British Public Split Between Immigration Controls and Economic Growth
British Cybersecurity Agencies Raise Alert Over Growing Threats to Critical Infrastructure
Two-Thirds of England Now Under Official Drought Conditions After Prolonged Summer Heat
Institute of Directors Calls for Urgent Action to Revive Britain’s Stagnant Labour Market
Andy Burnham Visits Kyiv on First Foreign Trip and Pledges Continued British Support for Ukraine
New Daily Diabetes and Weight-Loss Pill Launches in UK Pharmacies
×