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Businesses The Almighty Buck

Massachusetts Wants To Pull the Plug On Robinhood (cnn.com) 106

Posted by BeauHD from the escalating-battles dept.
Regulators in Massachusetts are seeking to revoke Robinhood's broker-dealer license in the state, after accusing the company of failing to properly account for fractional shares traded by customers on its platform. They also say the company "continues to entice and induce inexperienced customers into risky trading." CNN reports: The battle began in December when regulators in Massachusetts filed a 24-page complaint against Robinhood accusing the company of violating state law and regulations by failing to protect customers and safeguard its system. Officials alleged Robinhood lured inexperienced investors to its platform with gaming elements such as colorful confetti -- a practice that the company recently said it is getting rid of. The amended complaint filed Thursday says Robinhood has continued a pattern of aggressively enticing customers, including some with "little or no investment experience." It cites news reports indicating Robinhood has expanded margin lending and sought to persuade customers to deposit their stimulus checks by offering "free cash" for deposits.

Robinhood's conduct since the complaint was filed in December "poses a substantial and continued risk to Massachusetts investors," the complaint said. Massachusetts regulators said Robinhood has failed to report its fractional share trade executions for over a year, "demonstrating its inability to follow the most basic requirements" required of broker-dealers.

In a blog post, Robinhood sharply criticized what it described as "unfounded, politicized allegations and unreasonable demands" from regulators in Massachusetts and warned that revoking its license would block access for millions of customers. "The Massachusetts Securities Division's attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for," Robinhood said. "We don't believe our customers are naive as the Massachusetts Securities Division paints them to be." Robinhood fired back by filing a complaint and motion in Massachusetts State Court for a preliminary injunction that would stop the regulatory case against the company. Robinhood is arguing that the regulator's new fiduciary rule "exceeds its authority" under both state and federal law. "By trying to block Robinhood, the division is attempting to bring its residents back in time and reinstate the financial barriers that Robinhood was founded to break down," Robinhood said in the blog post.
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Massachusetts Wants To Pull the Plug On Robinhood More

Massachusetts Wants To Pull the Plug On Robinhood

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  • Taxachusetts (Score:5, Insightful)

    by gosso920 ( 6330142 ) on Friday April 16, 2021 @03:15AM (#61279554)
    Some politician didn't get his daily dose of graft.

    • Or Robinhood got outgrafted.

      • Re: Taxachusetts (Score:2, Insightful)

        by saloomy ( 2817221 )
        The nine most frightening words in the English language: Im from the government, and im here to help you.

        If you are in government, just remember, if people dont want to do something, they do not need your regulation to refrain.

        • Re: (Score:1)

          by sphealey ( 2855 )

          Pounded into the US psyche by Ronald Reagan, a man who spent almost half his life on government payrolls (not even counting his time in the Army, spent on assignment to his Hollywood studio).

        • The nine most frightening words in the English language: Im from the government, and im here to help you. If you are in government, just remember, if people dont want to do something, they do not need your regulation to refrain.

          Yeah, nice quote...from the president who started the whole trend of insanely reckless government spending. The size of the government increased under Reagan's watch...but people like you were all too eager to watch your government protections eviscerated for tax cuts to billionaires and pointless defense spending.

          Government is too complex to be summarized in 9 words. Yeah, overreach is bad, but wanting to shrink government without knowing what you're doing is far worse. Deregulation has been a cons

        • Are not these the ten most frightening words in the English language?

    • Or (Score:4, Informative)

      by ArchieBunker ( 132337 ) on Friday April 16, 2021 @08:22AM (#61279952)

      You could at least read the fucking summary.

      Massachusetts regulators said Robinhood has failed to report its fractional share trade executions for over a year, "demonstrating its inability to follow the most basic requirements" required of broker-dealers.

      So yeah keep pulling facts out of your ass.

      • Re: (Score:3)

        by tomhath ( 637240 )
        Note that the state didn't accuse Robinhood of mishandling the money, just that they overlooked one of probably hundreds, if not thousands of things that they have to report. The rest of the article, and apparently their main concern, is that they think investors are too dumb to be allowed to make their own decisions.

        • Don’t forget that a young man committed suicide because Robin Hood let him believe he had lost hundreds of thousands of dollars. The company sounds like a real shit show.

    • Comment removed based on user account deletion

  • Mass Retirement fund (Score:4, Interesting)

    by ghoul ( 157158 ) on Friday April 16, 2021 @03:17AM (#61279560)
    It seems the Mass. Govt Employees Retirement fund invested in Hedge Funds short on the WSB stocks. These regulators are desperate to save their pensions by preventing Hedge Fund bankruptcies

    • You saw how the fake 'people's Senator' Warren from MA had knives out for retail investors, right?

      At this point - good - cryptographic governance is better than violent government anyway. Let's get it over.

      These people can have their defined-benefit pension and it will buy them a sandwich a week.

    • Re: (Score:2)

      by fermion ( 181285 )
      And major international banks got fooled into investments by a single known fraudster that cost the billions of dollars.

      I think the idea of the unsophisticated invest is antiquated because information and data is no longer actively hidden and heavily monetized. A person who wants to learn can, and should be allowed to. Platforms like Robinhood can allow for this, and are not frauds like so many schemes of the past.

      On the other hand, it is does suffer from the same defect we have seen over the past coup

      • Re: (Score:2)

        by sfcat ( 872532 )

        On the other hand, it is does suffer from the same defect we have seen over the past couple decades, where there is a lack of risk management and the small investors suffers. Here we see it in the lack of oversight for margin loans. Back in the housing crisis, it was giving mortgages assuming prices would always rise, packaging those mortgages so no one really owned them, and then foreclosing often without due process.

        If RH stopped allowing options trading, I would be much more likely to support this point of view.

    • It seems the Mass. Govt Employees Retirement fund invested in Hedge Funds short on the WSB stocks. These regulators are desperate to save their pensions by preventing Hedge Fund bankruptcies

      Huh?
      https://www.masslive.com/polit... [masslive.com]

  • There's no real way to judge what level of advertising satisfies Massachusetts regulations. Hanging such severe judgement on a single line of regulation is a bit capricious.

    • Re:The Massachusetts duty of care responsibility i (Score:4, Insightful)

      by JaredOfEuropa ( 526365 ) on Friday April 16, 2021 @03:58AM (#61279608) Journal
      Maybe the same as what happened with the duty of care imposed on European banks regarding watching for money laundering and criminal activity. Or the duty of care imposed on social media for keeping fake news and hate mongering off the net. Create vague regulations with unclear requirements and stiff penalties, and companies will go above and beyond to ensure that they remain compliant. Perhaps to the extreme level that the legislator would like to see but didn't quite dare to put into law.

      • Maybe the same as what happened with the duty of care imposed on European banks regarding watching for money laundering and criminal activity. Or the duty of care imposed on social media for keeping fake news and hate mongering off the net. Create vague regulations with unclear requirements and stiff penalties, and companies will go above and beyond to ensure that they remain compliant. Perhaps to the extreme level that the legislator would like to see but didn't quite dare to put into law.

        Hmm, almost sounds unappetizing when you put it that way ..

    • Is a what?

      It really bugs me when people start their comment in title box and then just keep going but at least they finish their fucking sentences before starting a new one.

    • The regulations seem simple enough. Perhaps you should read the article?

      Massachusetts regulators said Robinhood has failed to report its fractional share trade executions for over a year, "demonstrating its inability to follow the most basic requirements" required of broker-dealers.

      • Explain this part of the article:

        The amended complaint filed Thursday says Robinhood has continued a pattern of aggressively enticing customers

        That seems to indicate that the regulators are upset Robinhood advertises and encourages it's customers to use it service.

        • Re: (Score:2)

          by SirSlud ( 67381 )

          enticing customers to make poorly informed financial risks .. libertarians can cry all you like but the general will of the society frowns on a private enterprise that's predicated on what amounts to renting motorcycles and vodka to 20 year olds who chug, refuse to wear a helmet, and speed off

          the wet dream of adults being self accountable islands continues to perplex morons

          i know "person can do what they want" is a very attractive ethos for people without a lot of space in their heads, but it's no way to ru

          • Those vodka chugging adolescents might hurt themselves, others, or others' property. RobinHood only allows them to hurt their own property.

          • libertarians can cry all you like but the general will of the society frowns on a private enterprise that's predicated on what amounts to renting motorcycles and vodka to 20 year olds who chug, refuse to wear a helmet, and speed off

            Society has no problem with a private enterprise that's predicated on selling motorcycles to 21 year olds who go out and chug vodka and speed off without helmets.
            Society has no problem with a private enterprise that's predicated on selling motorcycles to 18 year olds who ride them like jackasses doing 100mph in a 40mph zone.
            Society has no problem with a private enterprise that's predicated on selling sports cars to parents who let their 16 year olds drive them and race them on public streets.
            Society ha

    • Re: (Score:2)

      by endus ( 698588 )

      Massachusetts deliberately obfuscates it's laws and regulations to make them as opaque and impossible to comply with as possible. It gives the AG the flexibility to bully people in ways which would not actually be legal if written in to law, and helps keep people afraid by making compliance a very vague target that you can never really be sure if you hit.

  • Considering the shorting BS going on I'm not surprised.

  • Honest question. If those Regulators in Massachusetts were successful, would that only affect residents in that state or would it affect residents in other states?

  • Could someone kindly explain to me what âoegaming elements such as colorful confettiâ means in the context of Robinhood?

  • Robinhood isn't the problem (Score:5, Insightful)

    by MysteriousPreacher ( 702266 ) on Friday April 16, 2021 @06:52AM (#61279772) Journal

    The issue is far broader. Take YouTube as an example. Despite frequently banning or demonetising channels, supposedly for wrongdoing, they run no end of dodgy adverts for stock trading. There are the adverts that very plainly mislead people in to believing they can invest $250 in Amazon or Netflix stock and make thousands within a day. Google publicly bewails a flood of misinformation while continuing to make money from these dubious adverts.

    The issue isn't with a single company any more than a single pyramid scheme can be eradicated to end the problem. It's about education and ensuring adverts present a realistic picture. For example, for investments it'd seem reasonable to require that adverts prominently present average returns (as a minus if most people lose money). If people see that and still want to take a chance then that's their business.

    • It's about education and ensuring adverts present a realistic picture.

      So we’re all screwed....

    • It's about liability. The whole problem would be gone overnight if they simply setup a government portal where people can report how they were lied to and receive a $10k (or whatever) payout for each incident. The company would be on the hook for say $20k, and that additional money would go to enforcement investigation.

    • It's just becoming more honest, so when will people call it gambling and just admit it's a big casino? How bad does it have to get?

      Answer: really bad, over the top beyond obvious.... just look at Trump to see how incredibly retarded half the population is (retarded is the proper term too, look it up.)

      • It's just becoming more honest, so when will people call it gambling and just admit it's a big casino?

        Sir, this is a casino, not some kind of shady back alley brokerage!

  • Some dumb, some legit. (Score:5, Informative)

    by Ambvai ( 1106941 ) on Friday April 16, 2021 @07:09AM (#61279802)

    I've had an RH account since it was in the equivalent of beta, and they've had issues of various scale for a long time. Unfortunately, I think regulators are barking up a lot of wrong trees. (But just for fun, Massachusetts is way overzealous in this regard: https://www.nextbigfuture.com/... [nextbigfuture.com] )

    Just since COVID:
    Multiple service outages during 'important' times. When the market realized that COVID was going to be a serious thing and the economy tanked hard that day-- they went down entirely for a few hours. If you had enough assets and complained, they offered you like a 20$ Amazon card. On Gamestop Day, they had a lack of funds (but 'not a liquidity crisis') that led to them (and other brokerages) shutting down the purchase, but not selling, of a list of highly volatile companies. Some of them were household names too, like Starbucks. Yesterday, they had an outage on their crypto system when Dogecoin climbed.

    Ridiculously awful handling of spreads, both from an execution and informational standpoint, which lead a kid to commit suicide because he thought he was liable for something like 750k in losses, when it was actually closer to like 10k. Having said that, if he had an actual understanding of what he was doing, or just asked around online, it was a known issue. The execution side of things just results in financial losses greater than there should be.

    Practically impossible to contact in 'emergency' situations-- there was what was suspected to be some kind of security breach that caused several hundred people over the span of a few days to have their accounts liquidated. People saw the transactions going on in real time, but there was no way to contact the brokerage to have them lock it down until the situation could be investigated... people had to use the standard contact form which yielded the equivalent of a 'Your call is important to us. We'll get back to you never.' If you watched the congressional hearing, the CEO claimed they made great strides and they now have a contact number... he rep called the number, live on the hearing, and it was an explanation of how to submit a message online.

    A lot of sloppy internal reporting. When I transferred out to TDA, it took forever because, according to TDA, there were numerous inconsistencies including confusion over assets being recorded as purchased on margin despite there being cash available.

    I will say that they are good at the whole "gamification" thing... but part of that is having an interface that's really easy and clean to read. Despite transferring my assets out months ago, I still keep a dollar in it to keep my account live in perpetuity just because it's the cleanest interface to use to monitor my holdings at a glance. I personally don't think gamification is an issue-- it's an interface that's clean, simple, and their target market appreciates it. Sometimes I want a fully detailed chart with custom analysis on it, sometimes I just want a nondescript red/green line.

  • The average Robinhood user is either a WSB trader or cut from the same cloth. They genuinely believe Tesla is worth more than any auto company on Earth despite the fact that it has some very troubling financial and quality issues (and its competition is starting to catch up). They genuinely believe that Gamestop squeezes to the moon are still possible even though Gamestop is about to sell another 3.5M shares.

    For an interesting indictment of their mentality, look at how WSB as a community reacted to silver i

  • So... this is the old "modified the code to capture the fractional dollars in the 4th digit and route them to his account" story that I first heard in reference to 1960s data processing (and 1970s, and 1980s... Although it may have been around in the accounting machine days of the 1920s as well) - except this Robinhood company just went ahead and implemented that illegal algorithm right out in the open as part of their base code? And just steals those fractional dollars out of its customers' accounts? An

    • Re: (Score:3)

      by Ambvai ( 1106941 )

      Not really stealing from their clients:

      Fractional shares are a ting nowadays because people might want to invest in Amazon, but can't afford the ~3000 for a single share. The problem is that, institutionally, shares are only traded in whole number increments, so if you buy 10% of AMZN, what you're actually buying (ostensibly, there are even more layers of abstraction and obfuscation) is a 10% interest of one share; somebody else affiliated to you has to own the entire share to extend that 10% to you, which

      • Re: (Score:2)

        by sphealey ( 2855 )

        - - - - - The actual details are pretty light, but I'm guessing that the implication is that they're rounding fractional shares down and not actually acquiring them on behalf of the shareholders to parcel out the fractional interest in them which is throwing off the amount of shares that actually exist.. - - - -

        Which is exactly the scenario I described, with an overlay of terminology from a different industry. There are two widely used databases (at least) with NUMBER datatypes that implement true deci

        • Re: (Score:2)

          by Ambvai ( 1106941 )

          Ah, I get it, sorry. I was reading it as a parallel between having fractions of a cent of interest being stolen drawn as a parallel to fractions of a share being stolen, not just another place to apply the good ol' gimmick of a limited number of significant digits.

  • Interesting for MA to mention this seeing as they have casinos and state lotteries. Many people view such as "investments".

    I guess State offered and supported programs that target "inexperienced customers" are OK, the State sees direct money...

    The fractional trading is probably an actual rule violation.

  • If you regulate RH then you need to also curb other forms of gambling. Deleware is saying, we don't like people taking risks and losing money, well people will do that anyway with other forms of gaming. Don't come down on RH for risky behavior if your going to allow it on other platforms.

    Deleware allows sports betting, so it's either they are for gambling or against it and by the laws they've passed it appears that gambling is ok. By calling RH gambling or gaming, Deleware already allows this.

  • "The Massachusetts Securities Division's attempt to prevent Massachusetts residents from choosing how they invest is elitist and against everything we stand for," Robinhood said. "We don't believe our customers are naive as the Massachusetts Securities Division paints them to be."

    And yet Robin-hood did exactly that when they suspended purchases of Gamestop stock. Oh the irony.
  • MA is the home of Fidelity and many other mutual fund companies.

    It this corruption? Probably not, but it is worth keeping in mind we host some major financial players who compete with RobinHood....it's also an affluent progressive state that wants to protect it's people, just like how California leads in auto emissions, MA wants to lead in consumer protection. I'd err on the side of MA heart being in the right place, but I never forget the major companies we host here & who important they are to th

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