FINRA Digital Backgrounder – Robinhood Enforcement Action and $30 Million Investor Education Initiative

Following are some publicly available resources that can help supplement the information in our June 30, 2021 announcements, which you will also find below. If you have additional questions, please contact [email protected].

FINRA announced today that it has fined Robinhood Financial LLC $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers. The sanctions represent the largest financial penalty ever ordered by FINRA and reflect the scope and seriousness of the violations. In determining the appropriate sanctions, FINRA considered the widespread and significant harm suffered by customers, including millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.

News Release:  FINRA Orders Record Financial Penalties Against Robinhood Financial LLC 

Letter of Acceptance, Waiver and Consent (AWC)
 

FINRA also announced it has launched a multi-year, multi-faceted $30 million initiative to explore innovative ways to reach and educate investors, especially new, self-directed retail investors who conduct transactions through online accounts or using mobile apps. 

As phase one of the initiative, FINRA and the FINRA Investor Education Foundation (FINRA Foundation) today issued a Special Notice soliciting input from firms, investors, investor advocates, academics and other stakeholders concerning effective ways to reach these new investors. 

News Release:  FINRA Launches $30 Million Educational Initiative Aimed at Newer Investors

Special Notice

2019 FINRA Sanctions Against Robinhood

In December 2019, Robinhood entered into an AWC with FINRA (No. 2017056224001), through which it consented to findings that, from October 1, 2016, through November 9, 2017, the firm violated FINRA Rules 5310(a), 5310.09, 3110(a), 3110(b), and 2010 by not exercising reasonable diligence to ascertain that the broker-dealers to which it routed customer orders for payment for order flow provided the best execution quality as compared to other execution venues and by not having a reasonably designed supervisory system and procedures to achieve compliance with its best execution obligations under FINRA’s rules. The firm consented to a censure, a $1,250,000 fine, and an undertaking to retain an independent consultant to conduct a comprehensive review of the adequacy of the firm’s policies, systems, procedures and training relating to achieving compliance with FINRA Rule 5310.

News Release  |  Letter of Acceptance, Waiver and Consent (AWC)

Top 10 Enforcement Fines Previously Levied

This settlement with Robinhood is the largest fine levied in FINRA’s history. For context, following are the top 10 fines previously levied.

Case ID Respondent Name Fine Amount (in millions)
CAF020001 CREDIT SUISSE FIRST BOSTON CORPORATION $50.0
2014040870001 METLIFE SECURITIES INC. $20.0
2013038726101 CREDIT SUISSE SECURITIES (USA) LLC $16.5
2013036054901 CITIGROUP GLOBAL MARKETS INC. $15.0
2016051105201 BNP PARIBAS SECURITIES CORP. $15.0
2015047770301 INTERACTIVE BROKERS LLC $15.0
CAF030001 ROBERTSON STEPHENS, INC $14.0
EAF0300720001 MERRILL LYNCH, PIERCE, FENNER & SMITH INC $14.0
CRC050001 AMERICAN EXPRESS FINANCIAL ADVISORS INC. $13.0
2012035224301 MERRILL LYNCH, PIERCE, FENNER & SMITH INC. $13.0

Actions issued prior to 2005 pre-date the time period for actions posted on FINRA’s Disciplinary Actions Online database and are not linked in the chart above.

About FINRA

FINRA (the Financial Industry Regulatory Authority) is a not-for-profit organization dedicated to investor protection and market integrity. FINRA regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. 

FINRA, overseen by the U.S. Securities and Exchange Commission, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public.

In addition, FINRA provides market surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees.

Governance – FINRA is overseen by a 23-member Board of Governors, the majority of whom are public—that is, outside the securities industry—members. More information regarding the Board's operations, including the membership and responsibilities of its committees, is available at www.finra.org/governance.
 

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FINRA Enforcement

FINRA Enforcement works on the front lines of investor protection. We advance confidence in the securities markets through vigorous, fair and effective enforcement of FINRA and MSRB rules, and federal securities laws and rules.

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Jessica Hopper
Executive Vice President and Head of Enforcement

Jessica Hopper is Executive Vice President and Head of Enforcement, responsible for FINRA’s disciplinary actions across the country. Prior to assuming this role in January 2020, she was Senior Vice President and Deputy Head of Enforcement for four years, and Senior Vice President in charge of the Regional Enforcement program in the 14 FINRA District Offices from 2011 to 2016. Hopper joined FINRA in 2004 and was a Director in FINRA’s Washington D.C. office until 2011.

Prior to joining FINRA, from 2000 to 2004, she was part of Legg Mason Wood Walker, Inc.'s Legal & Compliance team, where her responsibilities focused on retail sales compliance. She began her career as a litigation attorney in private practice.

Hopper holds a J.D. from the University of Toledo College of Law and earned a B.A. from Hillsdale College.

FINRA Exam & Risk Monitoring Programs

As part of our mission to protect investors and safeguard market integrity, FINRA monitors and assesses FINRA-registered firms and their registered representatives through our Examination and Risk Monitoring programs.

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FINRA Investor Education

An important part of FINRA's work involves providing investors the information and tools they require to make informed decisions about their assets and avoid dealings with bad actors. FINRA regularly publishes materials targeted to investors on general investment topics and has specifically addressed subject matter relevant to this case. A representative sample is included below.

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General Investing

Online Trading

Options

Margin

FINRA Brookfield

Geraldine “Gerri” M. Walsh
President, FINRA Investor Education Foundation
Senior Vice President, Investor Education, FINRA

Gerri Walsh is Senior Vice President of Investor Education at the Financial Industry Regulatory Authority (FINRA). In this capacity, she is responsible for the development and operations of FINRA’s investor education program. She is also President of the FINRA Investor Education Foundation, where she manages the Foundation’s strategic initiatives to educate and protect investors and to foster financial capability for all Americans, especially underserved audiences. She joined FINRA in May 2006.

Prior to joining FINRA, Ms. Walsh was Deputy Director of the Securities and Exchange Commission’s Office of Investor Education and Assistance (OIEA) and, before that, Special Counsel to the Director of OIEA. She also served as a senior attorney in the SEC’s Division of Enforcement, investigating and prosecuting violators of the federal securities laws. Before that, she practiced law as an associate with Hogan Lovells in Washington, D.C. Ms. Walsh was the founding executive sponsor of FINRA’s Military Community Employee Resource Group and leads FINRA’s Corporate Social Responsibility efforts. She serves on the Advisory Council to the Stanford Center on Longevity and represents FINRA on IOSCO’s standing policy committee on retail investor education, the Jump$tart Coalition for Personal Financial Literacy, NASAA’s Senior Investor Advisory Council and the Wharton Pension Research Council.

Ms. Walsh received her J.D. from N.Y.U. School of Law and her B.A., magna cum laude, from Amherst College. She is a member of the New York and District of Columbia bars. 

Investing 2020: New Accounts and the People Who Opened Them

The following statistics are excerpted from a recent report that FINRA released in conjunction with NORC at the University of Chicago, entitled Investing 2020: New Accounts and the People Who Opened Them (February 2021).  Some key findings include:

  • 60% of new investors answered 1 (or fewer) questions correctly on a 5-question investing knowledge quiz.
  • Only 14% of new investors answered at least 3 out of 5 questions correctly, compared to 34% of experienced investors.
  • Over three quarters (76%) of investors trading options could not answer the options question.
  • Nearly three quarters (72%) of investors trading on margin could not answer the margin question.
  • Respondents with low investment knowledge were more likely to trade on margin.
Download the report
NORC Report

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