Robinhood manipulation tactics under scrutiny as lawsuit looms
Robinhood manipulation tactics: Robinhood, a popular stock trading app for millennials, is under investigation by the US Securities and Exchange Commission (SEC). According to The Wall Street Journal (WSJ) on September 2, the company failed to disclose the fact that it sells customer order data to external high-speed trading companies (HFTs).
Robin Hood, which appeals for free transaction fees, has attracted inexperienced young people to stock trading via the app and has achieved unprecedented growth scale, but has also suffered new troubles.
Robin Hood sells customer order data to ultra-fast trading companies such as Sidatel and Toushiguma but does not disclose that information correctly. The SEC is wondering if the company’s conduct is a civil fraud. It seems that the investigation is underway.
If Robin Hood decides to settle with the SEC, he could be ordered to pay a fine of more than $ 10 million, a source told The Wall Street Journal.
A recent article by Forbes revealed that Robin Hood is making money by selling customer data to the infamous Wall Street sharks while proclaiming “financial democratization.” Ultra-fast traders are making huge profits by paying companies like Robin Hood to get customer order data and knowing what’s happening in the stock market.
The company generated $130 million in revenue in the first quarter of this year, 70% of which came from external sales of customer order data called PFOF (Payment for Order Flow).
Robin Hood’s PFOF sales doubled from the previous quarter to $180 million in the second quarter of this year. The company’s competitors Charles Schwab and E-Trade also sell PFOF externally, but their share of sales is only about 3% and 17%, respectively.
Robin Hood wasn’t the inventor of PFOF’s external sales business model, but what sets it apart from its competitors is that it receives a certain percentage of the revenue it makes from trading.
The deal with the SEC is unlikely to be announced later this month, and Robin Hood has not yet formalized negotiations on the fines offered, sources told The Wall Street Journal.
Corporate value exceeds $1 trillion in 7 years since the establishment.
Robin Hood has also faced multiple proceedings, blamed for a system problem that occurred in March this year. The company that has also been investigated by the SEC and FINRA (Financial Industry Regulatory Authority) for neglecting to manage the system.
In June of this year, a tragic incident occurred in which a 20-year-old man named Alex Kearns committed suicide, believing he had lost $730,000 in Robin Hood.
With the coronavirus pandemic, many Americans tend to stay home, Robin Hood, who has rapidly increased new members, is whispered to go public by the end of the year.
The company announced on August 17 that it had raised a new $200 million in funding. In a series G round led by New York-based D1 Capital Partners, Robin Hood’s seven-year-old corporate value was estimated at $ 11.2 billion.
Robinhood manipulation tactics