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Robinhood 'Does Not Act In Best Investor Interest,' Massachusetts Securities Watchdog Alleges

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Robinhood 'Does Not Act In Best Investor Interest,' Massachusetts Securities Watchdog Alleges

Wildly popular trading platform Robinhood is being roped in by the Massachusetts securities regulators over alleged failure to implement controls to protect inexperienced investors, reports the Wall Street Journal.

What Happened: The enforcement arm of the Massachusetts Securities Division has written a 24-page complaint alleging Robinhood exposed Massachusetts investors to unnecessary trading risks and violated the fiduciary standard of broker-dealers to act in their client's best interest, as per the Journal. 

The complaint said that the Robinhood platform encourages customers to stay engaged with the platform through "gamification." The promise of free stocks, push notifications, and digital confetti hooks inexperienced used to the platform.

William Galvin, the Secretary of the Commonwealth of Massachusetts, said the complaint aims to protect young Massachusetts investors. "It's presented as some sort of game that you might be able to win," Galvin added.

Robinhood has nearly 500,000 customers in Massachusetts, with accounts totaling over $1.6 billion, according to the complaint.

Why It Matters: The trading platform has exploded in popularity in recent years and has also become a target of probes. Last year, Robinhood paid a $1.25 million fine to settle claims from the Financial Industry Regulatory Authority, which alleged that the company wasn't getting the best prices for customer orders.

Robinhood has 13 million customer accounts that tend to draw traders toward the user-friendly platform to trade securities like stocks for free.

The California-based financial services company plans to defend itself against the allegations.

"Over the past several months, we've worked diligently to ensure our systems scale and are available when people need them. We've also made significant improvements to our options offering, adding safeguards, and enhanced educational materials," a Robinhood spokeswoman told WSJ.

It is worth noting that Robinhood is aiming for a potential initial public offering in 2021.

Related Link: 10 Stocks Robinhood Users Are Trading During The Pandemic

Photo, courtesy of Robinhood

 

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