On July 1, 2021, a day after incurring a record-breaking $70 million from its regulator, FINRA, Robinhood filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) indicating its intention to go public. The IPO filing reveals that the company plans to list its share on the Nasdaq stock exchange under the symbol HOOD.
The public filing also revealed that the firm has experienced rapid growth and became profitable in 2020. In 2020, Robinhood generated net income of $7.45 million on net revenue of $959 million, compared with 2019, when the firm lost $107 million on $278 million in revenue.
Robinhood’s also disclosed the following information:
- $522 million Q1 2021 Revenue
- 18 million Accounts (net cumulative funded accounts)
- 7 million monthly active users
- $81 million assets under custody
- >50% of Robinhood’s customers are first-time investors.
- $30 million was paid in compensation to Chief Legal Officer Daniel Gallagher in 2020 (former SEC Commissioner).
- 31 years old is the median age of Robinhood’s customers.
- 81% of Robinhood’s revenue in Q1 2021 was from market makers, which routed customers’ stock, option, and cryptocurrency trades, in a practice known as “payment for order flow.”
- Citadel Securities LLC, Robinhood’s largest market maker, accounted for 27% of Robinhood’s $420 million in transaction-based revenue in Q1 2021, or over $113 million.
Robinhood’s filing also reveals that it is still dealing with customer-service, regulatory, and legal fall out from its decision to place trading restrictions on “meme stocks,” such as GameStop (NYSE: GME), AMC (NYSE: AMC), Blackberry (NYSE: BB), Nokia (NYSE: NOK), Koss Corporation (NYSE: KOSS), and Express, Inc. (NYSE: EXPR), on January 28, 2021.
Customer-Service Fallout
In the first quarter of 2021, roughly 206,000 Robinhood accounts that held $4.1 billion, or about 5% of the company’s assets under custody, were transferred to other brokerage firms. In 2020, the firm only received an average of 22,000 transfer requests per quarter.
Regulatory Fallout
The filing also disclosed that its recent $70 million settlement with FINRA did not address all matters that FINRA is investigating, including those related to the early 2021 trading restrictions. FINRA is also investigating conduct related to account takeovers, customer support procedures, and customer arbitration agreements.
Separately, Robinhood’s filing discloses that the SEC Examination Division conducted an examination that identified deficiencies related to processes for approving or rejecting certain accounts for options trading.
Iorio Altamirano LLP, a securities arbitration law firm in New York, is investigating claims on behalf of Robinhood customers who were approved to trade options by Robinhood but did not satisfy eligibility requirements. For more about the investigation, click on the following link:
Robinhood also disclosed that the SEC’s examination identified deficiencies in other areas, including account takeovers, identity theft in connection with new account opening, and customer support response times.
Several state regulatory authorities are also conducting investigations regarding Robinhood’s options trading and related customer communications and displays.
Legal Fallout
Many individual retail investors felt cheated and wronged when Robinhood restricted customers from purchasing specific securities on January 28, 2021, and are filing lawsuits in the form of securities arbitration complaints and class actions to recover losses.
Robinhood’s public filing also discloses that approximately 50 putative class actions have been filed relating to the early 2021 trading restrictions. The public filing does not disclose the number of FINRA arbitrations that customers have filed, but upon information and belief, dozens, perhaps hundreds, of claims have been filed.
Recently, a 26-year-old truck driver from Connecticut, represented by Iorio Altamirano LLP, filed a securities arbitration claim alleging that Robinhood’s decision to halt the purchase of securities by retail investors caused the share prices of the publicly traded companies to fall, resulting in losses.
Iorio Altamirano LLP
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY, representing investors in securities arbitrations against Robinhood.
Iorio Altamirano LLP pursues individual FINRA arbitration claims nationwide on behalf of investors to recover financial losses from brokerage firms’ wrongful conduct.
Iorio Altamirano LLP is a bilingual law firm, fluent in both English and Spanish.
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