"Investor Deception" Robinhood, the American Version of Donghak Ants, Fined 71.1 Billion Won

"Causing Losses to Investors from 2015 to 2018 by Not Disclosing Profit Structure"

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Robinhood, the online securities trading service that led the U.S. version of the 'Donghak Ant' craze, has been fined $65 million (approximately 71.1 billion KRW). The reason is that it did not sufficiently disclose how it generates profits to investors and instead emphasized that it charges no fees, which ultimately caused losses to customers.

According to Bloomberg and others on the 17th (local time), the U.S. Securities and Exchange Commission (SEC) announced that Robinhood agreed to pay this fine as part of a settlement to resolve the SEC investigation. Robinhood, which started its service in 2015, had been suspected of not properly disclosing how it generated profits until 2018.

According to the SEC, from 2015 to 2018, Robinhood earned most of its revenue through 'Payment for Order Flow (PFOF),' where instead of charging customers fees, it compensated large U.S. securities firms such as Citadel Securities and hedge funds like Two Sigma by routing customers' stock trade orders to them for execution. Since revenue was received from third parties instead of customers, this created a conflict of interest, as the business inevitably focused on maximizing the brokerage fees it received rather than securing profits for customers.

The SEC estimated that Robinhood customers lost about $34.1 million compared to choosing other brokerage firms. The PFOF prices were abnormally high, causing Robinhood customers' orders to be executed at worse prices than at other securities firms. Stephanie Avakian, Director of the SEC Enforcement Division, explained, "Robinhood provided false information to customers about the actual costs incurred when trading with them."

However, Robinhood clarified, "This settlement concerns past practices and is unrelated to today's Robinhood." Dan Calugar, Robinhood's Chief Legal Officer (CLO), stated, "We recognize our responsibility to help many first-time investors and are developing our services to meet customers' needs."

Robinhood was also sued the day before by Massachusetts authorities for "making stock trading like a game and encouraging risky investments by young novice investors."

This content was produced with the assistance of AI translation services.