Item: Iorio Altamirano LLP
Rating: 5
Author: Christine L.

Robinhood: Options Trading

Investor Alert: Iorio Altamirano LLP Investigates Robinhood for Failing to Exercise Due Diligence Before Approving Options Accounts

Iorio Altamirano LLP is investigating claims on behalf of Robinhood Financial LLC (“Robinhood”) customers who were approved to trade options by Robinhood but did not satisfy eligibility requirements. If you have lost money through options trading with Robinhood between December 2017 and May 2021, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential evaluation of your account and legal rights.

On June 30, 2021, the Financial Industry Regulatory Authority (“FINRA”) and Robinhood entered into a Letter of Acceptance, Waiver, and Consent No. 202006671201 (the “AWC”), whereby Robinhood consented to pay approximately $70 million for alleged systemic supervisory failures and significant harm suffered by millions of customers. Among those supervisory failures was the firm’s failure to exercise due diligence before approving options accounts. Specifically, FINRA alleged:

Since Robinhood began offering options trading to customers in December 2017, the firm has failed to exercise due diligence before approving customers to trade options.
Although the firm’s written supervisory procedures assign registered options principals the responsibility of approving accounts for options trading, the firm, in practice, has relied on computer algorithms—known at Robinhood as “option account approval bots”—with only limited oversight by firm principals.
This system suffers from several flaws, including the following:
(1) The bots were programmed to approve options trading based on inconsistent or illogical information, including for customers who were younger than 21 years old but who claimed to have had more than three years’ experience trading options.
(2) The bots approved certain customers with low-risk tolerance for options trading, even though the firm’s written procedures prohibited the firm from approving those customers from trading options.
(3) The bots were programmed only to consider the most recent information provided by customers, meaning that the firm approved for options trading customers whom it had previously rejected for options trading—often only minutes earlier.
As a result of these flaws and Robinhood’s overall failure to exercise due diligence before approving customers for options trading, the firm has approved thousands of customers who did not satisfy the firm’s eligibility criteria or whose accounts contained red flags that options trading may not be appropriate for them, in violation of FINRA Rules 3110, 2360, and 2010.

FINRA Rule 2360(b)(16) requires that, in approving accounts for options trading, firms exercise due diligence to ascertain “the essential facts relative to the customer,” including his or her age, income, net worth, investment objectives, and investment experience and knowledge. FINRA Rule 2360(b)(16) also requires that “[b]ased upon such information,” a principal at the firm—either a Registered Options Principal or a General Securities Sales Supervisor—“specifically approve or disapprove in writing the customer’s account for options trading.” In addition, in determining whether and to what extent to approve an account for options trading, a firm must consider the information provided by the customer “together with the other information available” to the firm.

According to the AWC, Robinhood did not establish or maintain a supervisory system reasonably designed to achieve compliance with FINRA Rule 2360(b)(16).

Iorio Altamirano LLP is particularly interested in speaking with Robinhood customers that were approved for options trading despite having reported to Robinhood the following eligibility information:

Having “limited” investment experience (less than three years of prior investing experience).
Having a low-risk tolerance.
Having “limited” or “no” options trading experience (including responses of “N/A”)
Being under the age of 21 at the time of being approved to trade options.
Being unemployed.
Having a modest annual income, net worth, or liquid net worth.

If you have suffered financial losses due to trading options at Robinhood, please fill out the following form for a free and confidential consultation. You may be entitled to compensation without paying any out-of-pocket fees or costs through a contingency fee arrangement.

Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue individual FINRA arbitration claims nationwide on behalf of investors to recover financial losses from brokerage firms’ wrongful conduct.

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