Massachusetts regulators are reportedly due to file a complaint against Robinhood on Wednesday, indicating that the company was clearly not acting in the best interests of its users The Wall Street Journal.
The regulatory authorities’ complaint focuses on the trading app, which exposes users – often young and inexperienced – to “unnecessary trading risks,” the Journal reported after reviewing a final draft of more than 20-page compliance.
“We did not see the complaint, but we have and will continue to work closely and cooperatively with all of our regulators,” a Robinhood spokesman said in a statement to CNBC. “Robinhood has opened the financial markets to a new generation of people who were previously excluded. We are committed to working with integrity, transparency and in compliance with all applicable laws and regulations.”
The Massachusetts complaint follows a reported investigation by the Securities and Exchange Commission in September.
Robinhood has pioneered the commission-free trading model since its inception in 2013, and its user base has exploded amid the pandemic. In the first four months of the year alone, the company had a record three million new customers as stocks slipped into a bear market. The app has drawn a lot of attention from Wall Street, and stock volatility in popular names like Tesla has since been attributed to these new investors in the market.
Robinhood said it had 4.3 million average daily revenue trades (DARTs) per day in June, outperforming all publicly traded established brokers. Robinhood’s DARTs more than doubled in the second quarter compared to the last three months, according to the company.
This year’s success has also brought growing pain. Robinhood has seen multiple outages including a multi-day outage in March leaving some clients unable to trade for the markets on a historic day.
In August, the company announced a $ 200 million Series G funding round and raised its valuation to $ 11.2 billion. Robinhood is expected to go public in 2021 and has hired Goldman Sachs to lead its IPO preparations, Reuters said, citing sources.
– CNBC’s Kate Rooney contributed to the coverage.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.