In a dramatic conclusion to a three-year legal battle, Robinhood Financial LLC has agreed to pay a staggering $7.5 million and undertake significant changes to its platform under a deal announced by Massachusetts securities regulators on Thursday. The settlement puts an end to a case that saw the popular online trader contesting charges related to the “gamification” of its platform before the state’s top appellate court.
Massachusetts Secretary of the Commonwealth Secures Victory
Secretary of the Commonwealth William Galvin’s office characterized Robinhood’s payment as an “administrative fine” and revealed that the company is set to “overhaul its digital engagement practices” as part of the settlement.
A Battle of Gimmicks and Legalities Unfolds
Galvin initially charged Robinhood in 2020, alleging that the platform’s use of attention-grabbing tactics like confetti animation and digital scratch tickets exploited inexperienced traders. The case revolved around a unique fiduciary rule set by Galvin’s office, holding broker-dealers to the same standard as investment advisers. Despite Robinhood’s legal challenge in 2021, the Massachusetts Supreme Judicial Court sided with Galvin in a pivotal ruling.
Last-Minute Settlement Averts Supreme Court Battle
Robinhood’s decision to settle came on the eve of the deadline for filing an appeal to the U.S. Supreme Court. Galvin expressed his satisfaction with the resolution, emphasizing that he hopes his fiduciary rule becomes a blueprint for other states.
Compliance Overhaul and Cybersecurity Concerns
Under the terms of the consent order, Robinhood must cease using images celebrating trading frequency and eliminate features simulating games of chance for Massachusetts users. The platform will also add disclosures and enlist an independent compliance consultant for a thorough review of its remaining digital engagement practices.
