Two members of the United States Securities and Exchange Commission with personal connections to Robin Hood employees breached the agency’s enforcement regulations with the popular trading app this month.
Outgoing SEC Chairman Jay Clayton and current Interim Chief Elad Roisman did not participate in Robinhood $ 65 million settlement fees that it has failed to provide its clients with the best prices for transactions on its platform, according to the agency disclosures.
Only three of the five SEC members approved the Robinhood settlement. The Robinhood case was the only SEC settlement in 2020 in which two commissioners did not participate in a vote, according to the revelations.
Although the SEC declined to comment on why Mr Clayton and Mr Roisman did not participate, both have ties to people hired by Robinhood this year. Commissioners will withdraw from law enforcement matters in the event of potential conflicts of interest.
Robin Hood hiring Lucas Moskowitz, who previously served as Mr. Clayton’s chief of staff at the SEC, joined his regulatory affairs team in August. In May he recruited a former SEC commissioner, Dan Gallagher, to be its chief legal officer. At the SEC, Mr. Gallagher hired Mr. Roisman as a lawyer.
The company declined to comment. Robinhood has teamed up with former regulators as scrutiny of its activities intensified, after a period of intense growth.
The app, founded in 2013, had been the engine of a boom in retail investor commerce that has helped propel financial markets – and tech stocks in particular – higher this year. It is now seeks to become public itself in 2021.
Robinhood has repeatedly failed to disclose that it receives payments from market-making companies in exchange for routing orders from its customers to the companies, according to the SEC rule. Customers would have gotten significantly better prices for their transactions if they had been routed to other brokers, the SEC found.
The regulator’s settlement with Robinhood was announced six days before Mr Clayton stepped down after more than three years as chairman of the SEC. The deal did not include some of the agency’s tougher enforcement tools, such as a requirement for a company to admit wrongdoing or individual sanctions for executives.
Robinhood was also sued this month by the Massachusetts securities regulator. the alleged state Robinhood has acted “without regard for the best interests of its clients” by using aggressive marketing and “playful” investments.
The company also failed to properly maintain the systems supporting its growing customer base, resulting in as many as 70 disruptions or outages between January and November, Massachusetts said.