Galvin Accuses Robinhood of Gamification Strategies
Robinhood Financial has reached a $7.5 million settlement with the Secretary of the Commonwealth of Massachusetts, William Galvin, to resolve a case regarding the platform’s use of gamification strategies.
The settlement between Robinhood Financial and the Secretary of the Commonwealth of Massachusetts, William Galvin, stems from a 2020 complaint filed by the Massachusetts regulator. The complaint accused Robinhood of using gamification strategies to attract inexperienced investors and highlighted the platform’s failure to prevent frequent outages on its trading platform.
The Massachusetts regulator claimed that Robinhood allowed inexperienced investors to make an unlimited number of trades without proper screening.
As part of the settlement, Robinhood has agreed to pay a $7.5 million administrative fine and make significant changes to its digital engagement practices.
The regulator’s complaint detailed the use of game-like features, such as confetti animation, digital scratch tickets, free stock rewards, and other tactics to encourage user interaction with the app. Push notifications and “most popular” lists were also employed to promote frequent trades.
The settlement addresses concerns not only about gamification but also about cybersecurity issues identified after a data security breach in November 2021 that affected around 117,000 customers in Massachusetts.
The regulator reportedly criticized Robinhood’s deficient internal cybersecurity policies and procedures and stressed the need for safeguards to protect investor information.
While the settlement addresses historical practices related to supervisory controls and procedures, a spokesperson for Robinhood emphasizes that the settlement does not find that the app’s digital engagement practices violated regulations or the state’s fiduciary rule.
The spokesperson reportedly rejects the notion that any part of the app, past or present, is “gamified.” Robinhood had previously sued Galvin’s office in 2021 to block administrative proceedings but lost the case, allowing the proceedings to continue in August 2023.
The settlement underscores Robinhood’s commitment to cease specific gamification tactics for Massachusetts customer accounts. This includes discontinuing the use of celebratory imagery tied to the frequency of trading, push notifications highlighting specific lists, and features that mimic games of chance. The platform will also address cybersecurity deficiencies identified after the data breach.
Previous Sanctions for Robinhood
This is not the first time Robinhood has been in trouble with regulators. In 2019, the Financial Industry Regulatory Authority (FINRA) reportedly sanctioned Robinhood Financial with a $1.5 million fine for allegedly failing to ensure investors received the best prices on securities orders. In 2021, Robinhood Financial settled with FINRA, agreeing to pay $70 million in fines and restitution to resolve allegations related to false or misleading information, system outages, and inappropriate approval of trade options.
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Tags: Massachusetts Securities, Robinhood Last modified: January 19, 2024