Shortly after agreeing a $ 65 million fine, financial technology startup Robinhood was hit by a new class action lawsuit.
Robinhood, a phone-based application, enables its users to transfer funds from a bank account to the company’s platform. Consumers can then buy and sell stocks for free. Robinhood started in 2013 and has at least 13 million users.
However, the class action lawsuit claims that many Robinhood consumers could have got better prices and deals if the company had been more transparent about its profits.
The San Francisco Business Times notes that the complaint was filed in a court in the Bay Area on Wednesday.
According to the Business Times, the class action lawsuit alleges Robinhood failed to inform platform users that it was selling consumer stock orders to trading companies. This complaint is similar to the $ 65 million case that Robinhood recently settled with the U.S. Securities and Exchange Commission (SEC).
Calculators and paperwork; Image via Pxhere, CC0.
On the file, lead plaintiff Justin William Lemon – a New Hampshire resident – said Robinhood had failed to inform him and other consumers that its business was “paying for the flow of orders.” In other words, Robinhood makes a profit by receiving money from market traders who pay to executive trades through the app.
“These payments,” says the lawsuit, “were often at the expense of the consumer.” While [Robinhood] advertised and promoted a user-friendly “commission-free” trading platform, [the company] benefited greatly from unsuspecting consumers who did business on their platform at lower execution prices than consumers from Robinhood’s competitors. “
The lawsuit named both Robinhood Financial LLC and Robinhood Securities LLC as defendants, according to the Business Times. Both companies are based in Menlo Park, Maryland, but operate primarily out of California.
Robinhood reportedly declined the San Francisco Business Times request for comment. However, the company had previously claimed to have or are reforming its business model after the SEC settlement.
In a statement, the company claimed that it is now “completely transparent in our communications with customers about our current revenue streams.”
The $ 65 million fine, said Chief Legal Officer Dan Gallagher, arose from “historical practices that don’t reflect Robinhood today.”
The app is also facing a legal challenge from the Massachusetts Securities Commission in which regulators claim the company has violated state law by “aggressively marketing itself to Massachusetts investors for the benefit of its customers.” The infrastructure and procedures required to maintain the requirements of the rapidly growing customer base failed to meet. “
Robinhood Financial fined the SEC $ 65 million for misleading users
Robinhood Financial hit class action for the sale of stock orders
Robinhood hit by new class action lawsuit