Regulators in Massachusetts have filed a complaint against Robinhood alleging the company has “aggressively marketed to inexperienced investors and failed to implement controls to protect them,” according to a Wall Street Journal exclusive. 

The Massachusetts Securities Division filed the complaint and said that Robinhood “exposed Massachusetts investors to ‘unnecessary trading risks’ by ‘falling far short of the fiduciary standard'” adopted by the state this year. The complaint comes after Robinhood settled claims from FINRA for $1.25 million after the regulator alleged it didn’t take steps to ensure it was getting the best pricing for its customers. Robinhood, as we have noted numerous times, sells its order flow to make up for loss of revenue from commissions. 

The 20 page administrative complaint includes some stunning data, including that Robinhood approved 68% of Massachusetts residents who applied for options trading, despite the fact that they had “limited” or “no” investment experience. 

The complaint also highlighted some of the rocket surgeons who are trading on Robinhood on a daily basis, including one customer who had “no investment experience” but is now making “approximately 92 trades per day” since February 2020 and another that started trading in April 2020 and has made “approximately 75 trades per day” since then.

Other customers highlighted included one trader who averaged 58 trades per day since April, one who averaged 38 trades per day since June and one who averaged 29 trades per day since February – all of whom have “no investment experience” prior to trading with Robinhood. 

The regulator also claimed that Robinhood “encourages customers to use the platform constantly” through what it calls “gamification” and “continuous and repeated engagement with its application.” From the WSJ:

In another example, the regulators point to Robinhood’s rollout of a new cash-management feature, accompanied by a wait list for customers to sign up for early access. Customers were given the ability to improve their position on the wait list by “tapping” a fake credit card in the app up to 1,000 times a day, the complaint says.

Also known as the Instagram “Stories” social media model…

William Galvin, the Secretary of the Commonwealth of Massachusetts, said: “It’s presented as some sort of game that you might be able to win.” 

A spokesperson for Robinhood commented: “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.”