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SEC Targets Bitcoin-Friendly Trading App Robinhood: Report

source-logo  decrypt.co 04 September 2020 00:00, UTC

Robinhood Markets Inc., the company behind the crypto-friendly Robinhood app is the subject of a civil fraud investigation, according to a Wall Street Journal report.

At issue is the company’s apparent failure to tell clients it was selling their buy and sell orders to high-speed trading firms. Such firms pay Robinhood to actually execute trades from Robinhood’s customers, who are typically layman day traders, not high-rollers.

The Journal notes that Robinhood could pay more than $10 million in fines to settle the Securities and Exchange Commission investigation, but that any deal likely won’t happen this month.

Bitcoin-friendly trading app Robinhood now worth $11.2 billion

The company told WSJ, “We strive to maintain constructive relationships with our regulators and to cooperate fully with them.”

According to earlier reporting from Bloomberg, high-speed trading firms paid Robinhood about 1.7 cents for every share traded from April through June. Since the firms are market makers, they in turn make money by charging a spread on each trade, not dissimilar to how a casino might take a cut on sports betting.

Robinhood could theoretically execute these trades itself, but some allege that selling them to a speed trader is a way of using computer algorithms to squeeze money out of ignorant investors. (One counter-argument is that traders might get a better wholesale price and actually save money.)

In addition to allowing users to trade stocks, the Robinhood app enables users to trade Bitcoin, Ethereum, and a handful of other cryptocurrencies. 

Robinhood has done big business despite the coronavirus pandemic. In August, it announced that it was valued at $11.2 billion; the month before, it was valued at $8.6 billion. 

decrypt.co