Robinhood, a financial services company that facilitates commission-free trades of stocks, exchange-traded funds and cryptocurrencies via a mobile app, said last year that it will pay NYDFS a $30 million settlement after a 2020 investigation about those issues.
NYDFS, the government branch responsible for regulating financial services and products, alleged that the financial services company's anti-money laundering and cybersecurity program failed to transition from manual transaction monitoring to a more user-size and transaction-volume-adequate system on a timely basis. NYDFS also alleged that Robinhood is inadequately staffed and does not have sufficient resources to address risks.
The penalty is NYDFS' first crypto-sector enforcement.
The regulator said the Menlo Park-based company violated the law when it certified compliance with the department despite the alleged issues. It also allegedly breached consumer protection requirements when it failed to maintain a dedicated hotline for consumer complaints on its website.
"As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance – a failure that resulted in significant violations of the department's anti-money laundering and cybersecurity regulations," NYDFS Superintendent Adrienne Harris explained.
The above-mentioned fine is the latest in the series of monetary penalties imposed on Robinhood. In 2020, the trading firm paid $65 million to settle a Securities and Exchange Commission (SEC) investigation over misleading customers. In 2021, the Financial Industry Regulatory Authority also fined the company $70 million for outages and deceiving its clients.
"We are pleased the settlement in principle reached last year and previously disclosed in our public filings is now final," Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement at Robinhood said.
She claimed that the company has made "significant progress" in building its legal, compliance and cybersecurity programs.
The trading platform announced that it is firing 23 percent of its employees following a 44 percent decline in revenue in their trading activities.
According to the SEC, the brokerage posted net revenue of $318 million for the second quarter as revenue from equity, options and crypto trading more than halved. Robinhood's net revenue in the same period last year was $565 million. The company's total operating expenses for the second quarter increased by 22 percent compared to the same period last year.
Earlier in the year, the firm already stated that they would perform another round of layoffs that would affect 780 employees, on top of the nine percent that they already laid off previously. It will also change its organizational structure to drive greater cost discipline, which would cost around $30 to $40 million.
The company posted a net loss of $295 million.
Robinhood's CEO Vlad Tenev recently said in a blog post that staff cuts earlier this year had not gone far enough. "As CEO, I approved and took responsibility for our ambitious staffing trajectory – this is on me." (Related: Robinhood fires nearly a quarter of its employees as crypto collapse diminishes company earnings.)
The platform's user-friendly interface made it a hit among young investors, trading from home on cryptocurrencies and stocks such as GameStop Corp during the Wuhan coronavirus (COVID-19) pandemic. But it posted plummeting revenues as its customer base has been threatened by rising interest rates and record-breaking inflation.
Robinhood is not the only technology company enduring the collapsing industry. Meta, Netflix and others are struggling to maintain their explosive pandemic-era growth; Tesla revealed it was selling off 75 percent of its bitcoin holdings in its recent quarterly earnings report; and Google has also implemented a hiring freeze.
Other crypto exchange platforms like Coinbase and BlockFi have also fired hundreds of staff amid worsening economic outlook.
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