Robinhood settles ‘gamification’ case with Massachusetts regulator for $7.5M
Cryptocurrency and stock trading app Robinhood has resolved an enforcement action first brought by Massachusetts’ securities regulator in December 2020.
According to a Jan. 18 announcement from Secretary of the Commonwealth of Massachusetts William Galvin, Robinhood agreed to pay a $7.5-million penalty and “overhaul its digital engagement practices” for targeting inexperienced investors in what many described as the “gamification” of trading crypto and stocks. Galvin claimed in the original complaint that Robinhood had marketed itself as “some sort of game that you might be able to win,” proposing revoking the firm’s broker-dealer license in the state.
“This settlement resolves historical matters dating back to 2021 that do not reflect Robinhood today,” Lucas Moskowitz, deputy general counsel and head of government affairs at Robinhood, told Cointelegraph. “We are pleased to put this matter behind us and move forward steadfast in our commitment to providing access to the markets for our Massachusetts customers.”
The settlement concluded a roughly three-year legal battle between the trading platform and Massachusetts. Following the December 2020 complaint, Robinhood filed a lawsuit against Galvin’s office to roll back the rule the state claimed the firm violated. Following an appeal, the case returned to court in 2023.
In addition to the “gamification” allegations, the Massachusetts securities regulator ordered Robinhood to address “serious cybersecurity issues" as part of the settlement. The trading firm said it rejected the premise its app was “gamified" and said it had “taken numerous steps” to address cybersecurity concerns since 2021.
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“While Robinhood ceased many of its gamification tactics after complaints were filed by the Securities Division, the settlement in this case ensures that for Massachusetts customer accounts, Robinhood will cease any future use of celebratory imagery tied to the frequency of trading, push notifications highlighting specific lists, and features that mimic games of chance," said Galvin’s office. “Robinhood must also add disclosures to its lists and engage an independent compliance consultant to evaluate other digital engagement practices that remain in use.”
The Financial Industry Regulatory Authority fined Robinhood roughly $70 million in 2021 for causing “widespread and significant harm” to thousands of users. In April 2023, Robinhood reached a $10 million settlement with securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas following allegations the firm failed its clients through multiple outages.
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