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Robinhood faces legal action from US regulator over ‘Aggressive Marketing’: WSJ

According to a Wednesday report by the Wall Street Journal, trading platform Robinhood faces a legal complaint from a U.S. state regulator accusing the firm of “aggressively marketing” its services to inexperienced traders.

According to Coindesk, the Massachusetts Securities Division has prepared a 20-page draft administrative complaint, which states Robinhood had exposed investors to “unnecessary trading risks” and violated state laws and regulations.

During the coronavirus pandemic, many young, inexperienced investors have started using the Robinhood app, which offers trading in stocks, exchange-traded funds and options, as well as cryptocurrency trading.

The platform has been reaping the advantages of the influx of users by “prioritizing its revenue over the best interest of its customers,” the Massachusetts complaint alleges.

Robinhood is also accused of encouraging “continuous and repeated engagement with its application” by “gamifying” trading, and allowing inexperienced investors to trade options.

The Massachusetts regulator wants Robinhood to improve its policies by approving users for options trading, and is further seeking an administrative penalty be paid by the platform. Per the draft, it should also get outside help in improving the platform to tackle outages.

A Robinhood spokeswoman told the WSJ:

“Robinhood has opened up financial markets for a new generation of people who were previously excluded. We are committed to operating with integrity, transparency, and in compliance with all applicable laws and regulations.”

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