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Robinhood’s Crypto Unit Expecting $10 Mln in Penalty for Alleged Violation of AML Rules

source-logo  bitcoinexchangeguide.com 08 July 2021 10:30, UTC

The much-anticipated initial public offering (IPO) of Robinhood is looking to hit the market soon. Its shares will be listed on the Nasdaq under the ticker “HOOD.” The date and valuation are still awaiting. Recently, the online brokerage allowed its users to apply for IPOs on its app and wants its users to buy its stocks on the platform as well as its plans to set aside as much as 35% of shares for individual investors, a much larger retail allocation than a typical deal. In its IPO filing last week, the company which helped fuel the meme stock frenzy also warned investors that it could become a meme stock, saying that large participation from retail investors could trigger volatility in its stock’s trading price. It is, however, now facing pushback on social media against its IPO with many individual investors planning to shun their stock market debut while several are urging others not to buy them either and received thousands of upvotes in Reddit’s online forums. "Just ignore the Robinhood IPO entirely," reads one post on the r/Superstonk subreddit, which also advised traders to transfer to Fidelity. People are pointing to the app not working properly, orders not filling promptly, and incorrect information about trades as the reasons for the same.

Under Regulatory Scrutiny

After seeing its listing plans slowed by a back-and-forth with regulators over its prospectus, the popular stock-trading app filed a registration statement on Form S-1 with the US Securities and Exchange Commission (SEC) last Thursday related to the proposed IPO of its Class A common stock. However, once again, it is under the scrutiny of the SEC for payment for order flow. In its IPO filing, the company disclosed that 81% of its revenue in the quarter first came from sending its customers’ stock, options, and cryptocurrency orders to high-speed trading firms. This practice, known as payment for order flow, made it possible for the company to let customers place trades with no upfront commission payment. However, its critics, which includes SEC Chairman Gary Gensler, argue that it poses a conflict of interest for brokerages because the brokers, instead of collecting more money for selling their customers’ order flow, can pass that money on to customers as price savings on their trades. Additionally, the cryptocurrency brokerage unit of Robinhood also expects to pay the New York State Department of Financial Services a penalty of at least $10 million for allegedly violating state rules on cybersecurity and anti-money-laundering practices; the company said in filings last week. Robinhood Crypto LLC has reached a settlement with New York regulators, and the eventual penalty could exceed $15 million, the mobile investing firm said. Any deal would also require the unit to engage an independent monitor, it added. NYDFS informed Robinhood’s crypto subsidiary of alleged violations of the rules in March. Robinhood said,
“We cannot predict the outcome of the investigation or any consequences that might result from it.”
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