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Robinhood HOOD, the beleaguered brokerage that caught the attention of Gen Z investors, is in for more pain.
The company’s cryptocurrency unit has been fined $30 million by the New York Department of Financial Services and has been accused of violating anti-money laundering and cybersecurity regulations.
Shares of Robinhood have tumbled 76.10% over the past year as the Gen Z investors it sought out appear to have suffered significant losses when cryptocurrency prices plummeted while the stock market retreated on concerns about high inflation and recession fears as the Federal Reserve raises interest rates.
Robinhood was trading at $9 at 11:30 am. ET, retreating from a 52-week high of $85.
The New York State Department of Financial Services announced on August 2 that it has issued its first cryptocurrency application.
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Insufficient staffing is alleged
The government branch that regulates financial services and products claims that Robinhood Crypto’s anti-money laundering and cybersecurity program was inadequately staffed and resourced to address risks and also found “critical failures in RHC’s cybersecurity program” .
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Robinhood’s crypto division did not switch from a manual transaction tracking system to one that has more resources for its user size and transaction volume, the New York State Department of Financial Services claims.
The state regulator alleges that Robinhood Crypto also violated the law when it certified compliance with the department and violated consumer protection requirements when it failed to create and maintain a phone number on its website for consumer complaints.
In addition to paying the fine, Robinhood Crypto must work with an independent consultant to assess its compliance with the relevant regulations.
“As its business grew, Robinhood Crypto failed to invest the appropriate resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” said NYDFS Superintendent Adrienne Harris.
Other fines paid
Robinhood has come under scrutiny from regulators over the past two years and paid $135 million in fines. In 2020, the brokerage paid $65 million when the SEC said it misled customers, and it paid a $70 million fine in 2021 when the industry regulator, the Financial Industry Regulatory Authority, said it misled customers and was responsible for outages.
The company said it has made “significant progress” in building out its legal, compliance and cybersecurity programs, said Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement at Robinhood.
“We are pleased that the settlement in principle reached last year and previously disclosed in our public filings is now final,” he said.
Since its launch, Robinhood has sought to democratize investing and attract a new generation of investors, but has faced a slowdown in trading volume that is affecting both the cryptocurrency market and the broader financial markets.
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