Robinhood App Hit With Massive $70 Million Penalty: How Does the Issue Affect its Stock Price, IPO?

Robinhood Markets Inc. is a popular American financial services company that features commission-free trades of stocks and funds in its mobile app. Unfortunately, the company has been slapped with a $70 million penalty on multiple charges, including technical failures, misleading information, and overall lack of due diligence for its customers.

It is undoubtedly a massive blow for the Robinhood app ahead of its planned IPO.

Robinhood was a highly recommended stock app when it was first released in 2019. It had a clean and straightforward interface that lets beginner investors easily and quickly build their investment portfolio. Unfortunately, years after, Robinhood disappoints many users with bad customer service.

Robinhood App Hit With Massive $70 Million Penalty

CNBC reported that FINRA, a self-regulatory organization that oversees brokerage firms and their registered representatives, is the opposing party that charged Robinhood with $57 million for fines and $13 million for the restitution to thousands of affected clients.

The biggest event that ties up to this charge is the suicide of a 20-year-old Robinhood customer back in 2020. The victim took his own life after being charged with a million dollars worth of leverage. Forbes reported that a screenshot of his phone showed the victim had a negative balance of $730,165. However, this number does not represent the victim's uncollateralized indebtedness (as the victim might have thought). Instead, the number was his temporary balance until stocks in his assigned options settled into his account.

This marks the first of many charges against Robinhood. FINRA said they charged the company for "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."

Robinhood neither admits nor denies these charges.

How Does the Issue Affect Robinhood Stock Price Ahead of IPO?

Robinhood takes the penalty and is expected to pay out some time in the coming months. The Robinhood head of public policy communications, Jacqueline Ortiz Ramsay, said that the company will instead focus on their customers and democratizing finance for all. The company is also investing in improving its platform stability, enhancing educational resources, building customer support, and improving legal and compliance teams, per CNBC.

Securities reported that IPOs, generally on stocks and trading, are steadily gaining value in these last few years. During the pandemic, which forced many businesses to resort to digital transactions, Global IPOs reached over $160 billion in value.

CNN Business notyed that Robinhood made the bold move of filing for an IPO earlier in March 2021. The company seems confident on its ability to capitalize on its torrent growth and record high stock prices in the markets. Regulator and politicians remain skeptical of their success. With Robinhood's ongoing charges and faulty app system, experts warn against "conflicts of interests" between Robinhood and its investors.