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The U.S. Securities and Exchange Commission (SEC) Thursday charged stock trading app Robinhood Financial with misleading customers on the source of its revenue and failing to secure them the best possible trades.
- Robinhood, which offers commission-free trading, could afford to do so because its "largest revenue stream" came from the trading firms paying Robinhood to handle execution.
- This "payment for order flow" partnership was not disclosed to customers, SEC alleged. And it came at the cost of best execution.
- "The order finds that Robinhood provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission," the SEC said.
- Robinhood settled the SEC charges with a $65 million penalty.
- In a separate action Wednesday, Massachusetts state regulators hit Robinhood with allegations of "aggressive marketing" tactics.
Read more: Robinhood Faces Legal Action from US Regulator Over ‘Aggressive Marketing’: WSJ
