Robinhood under investigation by SEC, FINRA for handling of day-long March outage

Robinhood is under investigation by the Securities and Exchange Commission and the Financial Industry Regulatory Authority over its handling of a March outage.

The discount brokerage made headlines in early March after its trading services shut down for more than an entire trading day. Investors were unable to gain access to the company’s help center, website, or mobile application.

The outage kept clients from securing profits on March 2 as coronavirus-linked volatility pushed stocks higher. The S&P 500 closed up 4.6% that day, while the Dow Jones industrial average gained nearly 1,300 points, or about 5.1%.

Robinhood’s app faced downtime and slowed performance the following day,though not through the entire trading session.

The investigations arrive as Robinhood transitions from a brokerage-industry upstart to a leading player. The company added more than 3 million accounts as of May, half of which belonged to first-time investors. Robinhood’s daily average trades in June reached 4.31 million and beat legacy firms including TD Ameritrade, Charles Schwab, and E-Trade. The rapid growth helped boost Robinhood’s total valuation to $11.2 billion as of mid-August.

Yet the company’s ascension in recent months has also led to increased scrutiny from regulatory bodies. The SEC and FINRA are particularly interested in Robinhood’s lack of a timely response to customers affected by the March outages, sources familiar with the probes told Bloomberg.

Robinhood cited infrastructure “instability” for March’s system failure and noted that funds and personal information were safe throughout the outage.

“When it comes to your money, issues like this are not acceptable. We realize we let you down, and our team is committed to improving your experience,” Robinhood wrote in an email the day after the March 2 issue.

The brokerage’s setbacks have also driven a great deal of investors’ ire to regulatory agencies. Since Robinhood’s outages left customers without access to its helpline, clients frequently banded together to flood government offices with complaints.

Federal Trade Commission comments show the agency receiving 473 reports on Robinhood from January to mid-July. By comparison, the FTC received 126 reports for Charles Schwab, 111 for E-Trade, and 69 for Fidelity over the same period.

Regulators have privately said they feel they’ve become Robinhood’s secondary customer service outlet, sources familiar with the talks told Bloomberg.

Robinhood seems to have heard such complaints. The company plans to hire hundreds more customer service representatives and has already sped up response times and bolstered its trading platform, according to reports.