London Daily

Focus on the big picture.
Wednesday, Aug 05, 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
UK Energy Security Faces Pressure From Middle East Conflict and Red Sea Disruptions
UK Government Expands Employment Discrimination Review Amid Labour Market Changes
UK Campaigners Call for Ban on Toxic Flea Treatments Linked to Water Pollution
MI6 Ranked Europe’s Leading Foreign Intelligence Service in Independent Review
Houthi Missile Attack on Saudi Oil Tanker Raises Further Red Sea Shipping Concerns
Palantir Faces UK Tax Criticism After Paying Two Million Pounds in Corporation Tax
Advanced AI Models Show Unexpected Behaviour During UK Cybersecurity Testing
Bank of England Introduces Tougher Artificial Intelligence Testing Rules for Financial Firms
Next Raises Annual Profit Forecast to One Point Two Four Billion Pounds After Strong Summer Sales
New UK Visa Rules Tighten Skilled Worker, Student and Family Migration Routes
UK Government Proposes New Equal Pay Enforcement Powers for Employers
UK High Court Blocks Home Office Deportation Policy for Alleged Trafficking Victims
UK Health Secretary Yvette Cooper Announces Major Reform of NHS Maternity Services
BP Reports Four-Year High Quarterly Profit of Five Point Seven Billion Dollars Amid Energy Market Turmoil
Bank of England Holds Interest Rate at Three Point Seven Five Percent as UK Growth Remains Weak
Spain and Morocco Trade Blame After 72,000 Migrants Enter Ceuta
Met Police Investigated Journalist Who Questioned Cambridge Professor
Badenoch Defends Tory Candidate Jailed for Antisemitic Abuse of Luciana Berger
NHS Spends £240m a Year Storing Paper Records Despite Digital Push
Apple Seeks Court Order to Stop OpenAI Using Alleged Trade Secrets
Breaking With the Past: One of the World’s Smallest Countries Changes Its Name
AI Is Remaking the US Economy, From GDP Growth to iPhone Prices
Comcast: Tied to a Chair and Hit in the Face With Cake: The Regular Humiliation Ritual at the US Corporate Giant
Aston Martin Faces Legal Threat Over £550m Rescue Deal
Conservative Party and Reform UK Face Growing Scrutiny Over Political Transparency
GMB and Public Sector Unions Prepare for Wider Debate Over Government Priorities
UK Government Faces Pressure to Address National Water Infrastructure Failures
NHS Radiographers Report Rising Racist Abuse From Patients
Breast Cancer Experts Call for Overhaul of NHS Diagnostic Approach
UK Government Reviews Prison Policy After Debate Over Capacity and Public Safety
Nigel Farage Faces Questions Over Leadership Discussions and Five Million Pound Donation
Conservative Party Faces Candidate Controversy Over Former Antisemitic Activist
UK Energy Industry Pushes for Greater Role for Domestic Oil and Gas Production
Gatwick Expansion Debate Continues as Airport Prepares for Second Runway Construction
Reform UK Wants the Royal Navy to Return Channel Boats to France
Government Faces Pressure Over Charity Funding Linked to Illegal Israeli Settlements
UK Fire Chiefs Demand Ban on Disposable Barbecues During Severe Drought
Medical Review Warns Current Breast Cancer Guidelines Miss Many Young Women
NHS Mental Health Trust Announces Twenty-Five Million Pound Service Cuts
MI6 Rated Europe’s Most Capable Foreign Intelligence Service in International Review
UK Watchdog Finds Serious Failures in Electronic Offender Monitoring System
BP Chief Warns UK Must Protect Domestic Oil and Gas Capacity
Water Supply Crisis Threatens England’s Housing Expansion Plans
UK Government Rewrites Procurement Rules to Prioritise Jobs Over Environmental Targets
English Channel Rescue Operation Saves One Hundred Seventy-Three Migrants After Boat Capsizes
Gatwick Airport Wins Legal Approval for Second Runway Expansion
UK Government Tightens Early Prison Release Scheme After Public Backlash Over Offender Freedoms
US and Japan Step In to Support the Yen in Rare Joint Intervention
The AI Pricing Problem: Companies Cannot Predict Their Own Bills
Europe’s Heat and Drought Are Now Disrupting Power, Shipping and Tourism
×