In re Robinhood Financial LLC and

 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 102170 / January 13, 2025 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22405 
 
 
In the Matter of 
 
Robinhood Financial LLC and 
Robinhood Securities, LLC 
 
Respondents. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”), against Robinhood Financial LLC (“Robinhood Financial”) and Robinhood Securities, LLC 
(“Robinhood Securities”) (collectively “Respondents”).  
 
II. 
 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (the “Offers”) that the Commission has determined to accept. Robinhood Financial 
admits the facts set forth in Section III paragraphs 80-91 below, acknowledges that its conduct 
violated Section 17(a)(1) of the Exchange Act and Rule 17a-4(b)(4) thereunder, admits the 
Commission’s jurisdiction over it and the subject matter of these proceedings, and, without 
admitting or denying any of the other findings contained herein, consents to the entry of this Order 
Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C 
of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 
Cease-and-Desist Order (“Order”), as set forth below. Robinhood Securities admits the facts set 
forth in Section III paragraphs 14-19 and 80-91 below, acknowledges that its conduct violated 
Section 17(a)(1) of the Exchange Act and Rules 17a-4(b)(4), 17a-4(j), and 17a-25 thereunder, 
admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and, 
without admitting or denying any of the other findings contained herein, consents to the entry of 
this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) 

 2 
and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial 
Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 
 
III. 
 
 On the basis of this Order and Respondents’ Offers, the Commission finds
1
 that  
 
Summary 
 
1. These proceedings arise out of Respondents’ violations of federal statutes and 
regulations related to blue sheet filing, short selling, identity theft, recordkeeping, and suspicious 
activity reporting between at least 2018 and April 2024 (the “Relevant Period”). 
2. Robinhood Financial and Robinhood Securities are the two broker-dealers 
responsible for accepting orders and executing trades on the Robinhood trading application or 
website. For investors using the application or website, Robinhood Financial serves as an 
introducing broker-dealer, and Robinhood Securities serves as the clearing and, in some 
circumstances described below, executing broker-dealer. During the Relevant Period, Respondents 
committed the following securities law violations: 
3. Electronic Blue Sheets: Robinhood Securities failed to submit to the Commission 
complete and accurate data in response to Commission staff electronic blue sheets (“EBS”) 
requests, resulting in the reporting of EBS that were incomplete or deficient. From at least October 
2018 through April 2024 (the “EBS Relevant Period”), in response to requests from the 
Commission, Respondent made at least 11,849 EBS submissions to the Commission that contained 
inaccurate information or omissions, resulting from eleven types of errors. Those errors resulted in 
the misreporting of EBS data for at least 392 million transactions.  
 
4. Fractional Share Trading and Stock Lending: Robinhood Securities failed to 
comply with Regulation SHO (“Reg SHO”) in connection with stock lending and fractional trading 
programs. From May 2019 until March 2020, Robinhood Securities did not timely close out fails 
to deliver resulting from its stock lending activities. Additionally, from at least December 2019 
until December 2023, Robinhood Securities effected millions of principal short sales relating to 
fractional shares trades that it mismarked as “long” because it lacked the ability to calculate its net 
proprietary position at the time of its sale orders. From December 2019 until May 2022, 
Robinhood securities mismarked millions of short sale riskless principal orders relating to 
fractional share trades as “long” because it improperly marked the orders based on its customers’ 
positions rather than its proprietary positions. Then, from May 2022 until December 2023, 
Robinhood Securities mismarked an additional 4.5 million riskless principal orders relating to 
fractional shares trades as “short exempt” even though Robinhood Securities did not satisfy all the 
conditions for doing so. 
                                                 
1
  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 

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5. Suspicious Activity Reporting: From January 2020 through March 2022, during a 
surge of customer trading activity, Respondents did not promptly initiate reviews of potentially 
suspicious activity or complete those reviews in reasonable periods of time. As a result, 
Respondents did not file Suspicious Activity Reports (“SARs”) in many instances until multiple 
months after the activity in question had been flagged for review. 
6. Identify Theft Prevention: From April 2019 through June 2022, Respondents failed 
to implement adequate policies and procedures designed to detect, prevent, and mitigate identity 
theft in connection with their customers’ accounts.   
7. Unauthorized Remote Access to Robinhood Systems: From at least June 28, 2021 
through November 3, 2021, Respondents failed to adequately address known risks posed by a 
vulnerability relating to remote access to their systems. On November 3, 2021, a third party 
obtained unauthorized access to certain of Respondents’ front-end systems and downloaded 
information related to millions of individuals who had provided this information to Respondents. 
8. Off-Channel Communications: The federal securities laws impose recordkeeping 
requirements on broker-dealers to ensure they responsibly discharge their crucial role in our 
markets. Respondents failed to adhere to certain of these essential requirements and their own 
policies and procedures. Using their personal devices, certain of Respondents’ personnel 
communicated both internally and externally by text messages and/or other unapproved written 
communications platforms (“off-channel communications”). From at least January 2019, some of 
Respondents’ employees sent and received off-channel communications that were records required 
to be maintained and preserved. Respondents did not maintain or preserve many of these written 
communications.  
9. Retention of Brokerage Data: Respondents failed to implement systems sufficient 
to comply with recordkeeping obligations applicable to broker-dealers that are registered with the 
Commission. Although Respondents used backup systems for their brokerage data to prevent data 
loss, between December 2020 and December 2023, Respondents failed to maintain copies of their 
core operational databases in a manner that ensured that legally-required records were protected 
from being intentionally or inadvertently deleted or modified for the required length of time.   
10. Failure to Maintain Customer Communications: Respondents failed to maintain 
certain customer communications for several months between 2020 and 2021. At the time, 
Respondents were using a third-party vendor to archive such communications. Because the total 
number of messages sent for archiving exceeded the limit the vendor had in place for processing 
them, some of the messages were not archived by the vendor in real time as intended. Respondents 
detected this failure in October 2020 and remediated it in March 2021. 
11. As a result of the conduct described above, Robinhood Financial willfully
2
 violated 
Rule 30(a) of Regulation S-P; Rule 201 of Regulation S-ID; Section 17(a) of the Exchange Act and 
                                                 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act 
“means no more than that the person charged with the duty knows what he is doing.” Wonsover v. 

 4 
Rules 17a-4, 17a-4(b)(4), and 17a-8 thereunder. Additionally, through the above conduct, 
Robinhood Securities willfully violated Rule 30(a) of Regulation S-P; Rule 201 of Regulation S-
ID; Section 17(a)(1) of the Exchange Act and Rules 17a-4, 17a-4(b)(4), 17a-4(j), 17a-8, and 17a-
25 thereunder; and Rules 200(g), 203(b)(1), and 204(a) of Reg SHO. 
Respondents 
 
12. Robinhood Financial is a Delaware LLC with its principal place of business in Lake 
Mary, Florida. Robinhood Financial is a Commission-registered broker-dealer and a member of the 
Financial Industry Regulatory Authority (“FINRA”). Robinhood Financial maintains accounts for 
customers and serves as their introducing broker. 
13. Robinhood Securities is a Delaware LLC with its principal place of business in 
Lake Mary, Florida. Robinhood Securities is a Commission-registered broker-dealer and a member 
of FINRA. Robinhood Securities serves as the clearing and, in some circumstances described 
below, executing broker-dealer for Robinhood Financial customer accounts. 
Electronic Blue Sheets 
Robinhood Securities Made Deficient Blue Sheet Filings 
 
14. Commission staff routinely sends requests for securities trading records to market 
makers, broker-dealers and/or clearing firms in order to review trading activity, and firms provide 
the requested records in a universal electronic format known as the EBS format. It is a fundamental 
obligation of broker-dealers to provide complete and accurate EBS data when requested by 
representatives of the Commission to do so. The submission of complete and accurate EBS data is 
critical to many aspects of the Commission’s operations and its ability to discharge its enforcement 
and regulatory mandates. The failure of a broker-dealer to provide complete and accurate EBS 
information in response to a Commission request can impact the Commission’s ability to discharge 
its statutory obligations, undermine the integrity of its investigations and examinations, and 
ultimately interfere with the Commission’s ability to protect investors. 
15. During the EBS Relevant Period, in response to requests from the Commission, 
Robinhood Securities made at least 11,849 EBS submissions to the Commission that contained 
inaccurate information or omissions, resulting from eleven types of errors. Those errors resulted in 
the misreporting of EBS data for at least 392 million transactions.   
16. Robinhood Securities’ submissions during the EBS Relevant Period, among other 
things, omitted responsive transactions, contained duplicate transactions, and/or contained 
inaccurate information about securities transactions reported, including with respect to EBS fields 
for the primary party identifier, contra party identifier, exchange code, order execution time, 
transaction type identifier, and/or the net amount of sale proceeds or purchase costs. Many 
transaction records were affected by more than one type of error.   
                                                 
SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 
1949)). 

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17. The errors in Robinhood Securities’ EBS were caused, in large part, by coding 
issues in its EBS reporting and fractional trading systems, as well as Robinhood Securities’ 
misinterpretation of the guidance governing EBS submissions. For example, due to Robinhood 
Securities’ misinterpretation of EBS-related guidance, it misreported (i) the primary party identifier 
for Robinhood Financial as “HOOD” instead of “CRFN,” which impacted at least 365 million 
transactions; and (ii) the options exchange code and options contra party identifier information for 
at least 27 million transactions. EBS reporting coding errors resulted in Robinhood Securities’: (i) 
misreporting of the contra-party identifier as “RHS” instead of the appropriate MPID, CRD, or 
OCC clearing number, which impacted at least 106 million transactions in which a principal trade 
was executed against a customer account; (ii) failure to report at least 50 million transactions made 
in proprietary accounts used to facilitate customer orders; and (iii) submission of duplicates of at 
least 6 million transactions. Moreover, due to a programming issue in the net amount field, 
approximately 71,000 transactions with a notional value of less than one half of one cent were 
improperly rounded down to zero. 
18. Certain of Robinhood Securities’ EBS errors stemmed from the systems that 
Robinhood Securities used to process fractional share transactions. As a result of coding issues in 
its fractional trading system, Robinhood Securities misreported the order execution time for at least 
59 million transactions. Due to another coding error, Robinhood Securities provided erroneous 
transaction type identifier information for at least 47 million transactions.   
19. At the time of its EBS submissions, Robinhood Securities did not detect the above 
errors at least in part because it did not have reasonable policies and procedures to verify that all of 
the information it was reporting was accurate. For example, Robinhood Securities failed to 
maintain adequate policies and procedures regarding the submission of EBS data for at least a part 
of the EBS Relevant Period. Robinhood also failed to conduct adequate periodic sampling and 
manual validation, and did not have proper quality controls in place to ensure the completeness and 
accuracy of its EBS data prior to its submissions. Because Robinhood Securities lacked adequate 
policies and procedures for validating the accuracy of the information reported in its EBS 
submissions, personnel at Robinhood Securities did not recognize the issues that led to its systemic 
reporting of deficient EBS information. 
Reg SHO 
Robinhood Securities Violated Reg SHO in its Stock Lending Business and Fractional Trading 
and Recurring Orders Activities 
A. Reg SHO 
20. Reg SHO Rule 203(b)(1) prohibits a broker or dealer from accepting a short sale 
order in an equity security from another person, or effecting a short sale in an equity security for its 
own account, unless the broker or dealer has borrowed the security, entered into a bona fide 
arrangement to borrow the security, or has “[r]easonable grounds” to believe the security can be 
borrowed so that it can be delivered on the date delivery is due. This is generally referred to as the 
“locate” requirement. 

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21. Reg SHO Rule 200(g) requires a broker or dealer to mark all sell orders of any 
equity security as “long,” “short,” or “short exempt.” An order to sell may be marked “long” only 
if the seller is deemed to own the security being sold pursuant to paragraphs (a) through (f) of Reg 
SHO Rule 200 and either the security to be delivered is in the physical possession or control of the 
broker or dealer, or it is reasonably expected that the security will be in the physical possession or 
control of the broker or dealer no later than the settlement of the transaction. Reg SHO Rule 200(c) 
provides that a person shall be deemed to own securities only to the extent he has a net long 
position in such securities. 
22. Reg SHO Rule 204(a) requires a participant of a registered clearing agency to 
deliver securities to a registered clearing agency for clearance and settlement on a long or short 
sale in any equity security by settlement date, or to close out a fail to deliver position resulting 
from a long or short sale transaction in that equity security within certain timeframes by borrowing 
or purchasing securities of like kind and quantity. 
B. Robinhood Securities Failed to Comply with Reg SHO Rule 204(a)’s Requirement to 
Close Out Fails to Deliver Resulting From its Stock Lending Business 
23. At all relevant times, Robinhood Securities has been a broker-dealer and 
participant of the National Securities Clearing Corporation (“NSCC”), a registered clearing 
agency. Thus, Robinhood Securities is subject to Rule 204(a)’s close out requirements whenever 
Robinhood Securities has a fail to deliver to NSCC on long or short sales in any equity security. 
24. In late 2018, Robinhood Securities began developing a new stock lending business 
that would allow it to earn interest from counterparties in exchange for lending out securities 
owned by its customers. 
25. During the development phase, Robinhood Securities understood that the stock 
lending business was likely to cause fails to deliver to NSCC when Robinhood Securities 
customers sold shares of equity securities that the customer owned but that Robinhood Securities 
had loaned to a third-party borrower. 
26. Rule 204(a) applied to these customer sales and required Robinhood Securities to 
(i) ensure delivery of such customer-owned shares by the settlement date of the customer’s long 
sale order, or (ii) ensure timely close out of resulting fail to deliver positions as required by Rule 
204(a). 
27. Robinhood Securities, however, concluded that Rule 204(a) did not apply, and, 
therefore, did neither. Robinhood Securities recalled stock loans in response to delivery obligations 
arising from customer sale orders, and those recalls generally prevented prolonged fails to deliver, 
but the recalled shares were not always returned in time to satisfy Robinhood Securities’ delivery 
and close-out obligations. As a result, from approximately May 2019, when it launched stock 
lending, to March 2020, Robinhood Securities systematically incurred fails to deliver to NSCC that 
were not closed out in accordance with Rule 204(a)’s requirements.  

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28. In early 2020, FINRA examiners identified this deficiency in Robinhood Securities’ 
stock lending program. In response, by March 2020, Robinhood Securities had developed and 
implemented procedures to address compliance with Rule 204(a). 
C. Robinhood Securities’ Fractional Shares Trading Programs Led to Violations of Reg 
SHO’s Order Marking and Locate Requirements 
29. During the period December 2019 through May 2020, Robinhood Financial and 
Robinhood Securities gradually rolled out fractional share trading (“Fractional Trading”), which 
allowed Robinhood Financial customers to place orders to buy and sell fractions of shares of 
certain securities.  
30. Beginning in January 2020, Robinhood Financial expanded Fractional Trading to 
permit customers to place orders to buy or sell certain securities in a specified notional quantity— 
i.e., a specific amount in dollars.  
31. In that same time frame, Robinhood Financial began allowing customers to 
automatically re-invest dividends and make recurring purchase orders in notional amounts 
(collectively, the “Recurring Orders”). 
32. Robinhood Financial designed its Fractional Trading system to allow customers to 
sell only up to the number of shares or notional amount held in their account. 
33. Robinhood Securities served as the executing broker for the customers’ Fractional 
Trading and Recurring Orders, facilitating the customers’ orders through principal and riskless 
principal orders as detailed below. 
a. Robinhood Securities’ Inability to Calculate its Net Position Caused It to 
Inaccurately Mark Principal Short Sale Orders as “Long” and Fail to 
Perform Locates 
34. Reg SHO Rule 200(f) requires a broker-dealer to determine its net position in a 
security by aggregating all of its positions in such security at the time of entering a sale order in 
that security. From at least mid-2019 until June 2023, Robinhood Securities did not have systems 
in place to aggregate all of its positions and properly determine its net position in an equity security 
at the time it entered a principal sale order.  
35. Due to its inability to determine its net position at the time of order entry, 
Robinhood Securities was unable to accurately mark such sell orders as “long” or “short” in 
accordance with Rule 200(g). Robinhood Securities also did not have systems in place to obtain 
required Rule 203(b) locates for such principal short sales. 
36. From December 2019 until December 2023, Robinhood Securities placed sell 
orders as principal to facilitate customer Fractional Trading and Recurring Orders. From December 
2019 until June 2023, Robinhood Securities marked all such transactions “long” even though it 
could not determine the firm’s net position in the security being sold. 

 8 
37. By at least October 2020, Robinhood Securities was incurring intra-day net short 
positions that were causing it to incorrectly mark principal short sale orders relating to Fractional 
Trading and Recurring Orders as “long.” The monthly incidence of incorrectly marked principal 
short sale orders peaked in February 2021 at more than four million. Robinhood Securities did not 
comply with the locate requirement for any of its mismarked Fractional Trading and Recurring 
Orders principal short sale orders.  
38. In March 2021, Robinhood Securities took remedial action to address the Fractional 
Trading principal short sale orders. First, Robinhood Securities adjusted the coding of the 
Fractional Trading program to prevent specific scenarios that led to principal short sales occurring. 
Second, it added a static inventory in the stocks that were made available through Fractional 
Trading, which further prevented principal short sales from occurring. Robinhood Securities’ 
remedial actions substantially reduced, but did not eliminate, the number of Fractional Trading 
principal short sales that were mismarked as long.  
39. From June 2021 to June 2023, Robinhood Securities understood its remedial 
actions may not prevent the possibility of principal short sales from occurring. During that time, 
Robinhood Securities continued facilitating Fractional Trading and Recurring Orders through a 
default order mark of “long” for all principal sale orders, while it continued to monitor for 
incidence of short sales and consider further remedial actions. 
40. From June 2023 through December 2023, Robinhood Securities implemented a 
new system that allowed Robinhood Securities to calculate its net position in a security within and 
across all of its accounts at the time of its entry of sale orders, including Fractional Trading and 
Recurring Order sale orders, so as to comply with the Reg SHO order marking and locate 
requirements discussed above. 
41. From December 2019 until December 2023, Robinhood Securities mismarked more 
than 15 million principal short sales as “long.” 
b. Reg SHO Violations Relating to Riskless Principal Transactions 
i. Robinhood Securities Improperly Marked Short Sale Riskless 
Principal Orders “Long” Based on Customers’ Positions 
42. Reg SHO Rule 201(a)(8) states that the term “riskless principal” shall mean a 
transaction in which a broker or dealer, after having received an order to buy a security, purchases 
the security as principal at the same price to satisfy the order to buy, exclusive of any explicitly 
disclosed markup or markdown, commission equivalent, or other fee, or, after having received an 
order to sell, sells the security as principal at the same price to satisfy the order to sell, exclusive of 
any explicitly disclosed markup or markdown, commission equivalent, or other fee. 
43. When Robinhood Financial launched Fractional Trading in December 2019, 
Robinhood Securities’ systems were designed to facilitate customer orders through a combination 
of riskless principal transactions and principal transactions. (All references to riskless principal 
sales orders in this section refer to Fractional Trading riskless principal sale orders.) For example, 
if a Robinhood Financial customer placed an order to sell 100.5 shares of a security, Robinhood 

 9 
Securities would sell 100 shares to market makers on a riskless principal basis in a “street leg” 
transaction. Robinhood Securities then would execute the balance of the order as principal by 
purchasing 0.5 shares from the customer. 
44. Robinhood Securities designed its systems to mark its “street leg” riskless principal 
sales effected as part of Fractional Trading as “long” based on the position of Robinhood 
Financial’s customer whose order Robinhood Securities was effectuating, which always was long. 
However, Reg SHO Rule 200(g) required Robinhood Securities to mark its “street leg” riskless 
principal sales based upon its own net position in the security at the time of order entry. 
45. In February 2022, Robinhood Securities realized it was improperly marking 
Fractional Trading riskless principal sale orders based on its customers’ underlying positions in the 
related customer sale order rather than Robinhood Securities’ net position.  
46. Between February 2022 and May 2022, Robinhood Securities implemented several 
remedial measures, including (i) an increase in static inventory to reduce the number of riskless 
principal sales for which Robinhood Securities would be in a net short position at the time of the 
sale; (ii) a shift to marking riskless principal orders “long” only if Robinhood Securities’ net 
beginning of day position for the security was long in the full amount of the order; and (iii) 
utilization of a “short exempt” order mark when Robinhood Securities believed it was, based on its 
beginning of day position, effecting a riskless principal sale from a net short position. 
47. These measures combined to substantially reduce the occurrence of riskless 
principal orders that Robinhood Securities mismarked as “long.” However, they did not ensure full 
Reg SHO compliance. Specifically, Robinhood Securities’ use of its beginning of day positions for 
marking its riskless principal orders “long” or “short” did not ensure compliance with Rule 200(g), 
which required Robinhood Securities to mark its riskless principal orders based on its net position 
at the time of the order. Thus, Robinhood Securities continued to mark some riskless principal 
orders “long” when it was in a net short position at the time of the order. Additionally, as set forth 
below, Robinhood Securities did not fully meet Reg SHO’s explicit conditions for using the “short 
exempt” order mark when it began using that order mark in May 2022. 
48. From December 2019 until May 2022, Robinhood Securities mismarked as “long” 
over 58 million Fractional Trading riskless principal short sale orders based on its customers’ 
underlying positions when it should have marked the orders “short” based on its net position.  
ii. Robinhood Securities Improperly Marked Short Sale Riskless 
Principal Orders and Short Sale Principal Orders as “Short 
Exempt” 
49. Reg SHO Rule 200(g)(2) provides that a sale order shall be marked “short exempt” 
only if the provisions of Reg SHO Rule 201(c) or 201(d) are met. 
50. Reg SHO Rule 201(d)(6) discusses instances in which a broker or dealer effects the 
execution of a customer “long” sale order on a riskless principal basis. It provides that a broker or 
dealer may mark a short sale order of a covered security “short exempt” if the broker or dealer has 
a reasonable basis to believe that the short sale order is by a broker or dealer effecting the 

 10 
execution of a customer purchase or the execution of a customer “long” sale on a riskless principal 
basis. A broker or dealer must have written policies and procedures in place to assure that, at a 
minimum: (i) the customer order was received prior to the offsetting transaction; (ii) the offsetting 
transaction is allocated to a riskless principal or customer account within 60 seconds of execution; 
and (iii) the broker or dealer has supervisory systems in place to produce records that enable the 
broker or dealer to accurately and readily reconstruct, in a time-sequenced manner, all orders on 
which a broker or dealer relies pursuant to this exception. 
51. Robinhood Securities’ use of “short exempt” from May 2022 until December 2023 
did not meet the conditions of Rule 201(d)(6) because Robinhood Securities did not have the 
required written policies and procedures. In December 2023, Robinhood Securities implemented 
written policies and procedures that met Rule 201(d)(6)’s requirement for using the “short exempt” 
order mark for riskless principal sales. 
52. In addition, Robinhood Securities applied the “short exempt” mark to certain 
principal short sale orders that did not meet the conditions for that mark because Robinhood 
Securities allocated the street leg sale orders to its customers at a different price from the one 
Robinhood Securities received from the street. Because of such price disparity, transactions failed 
to meet the definition of riskless principal in Rule 201(a)(8) and therefore did not qualify for “short 
exempt” order marking under Rule 201(d)(6). Robinhood Securities also remediated this issue. 
53. From May 2022 until December 2023, Robinhood Securities mismarked over 4.5 
million riskless principal orders (and in some instances principal orders) “short exempt” when it 
should have marked them short.  
Suspicious Activity Reporting 
Respondents Violated Exchange Act Section 17(a) and Rule 17a-8 by Failing to Timely File 
SARs 
 
54. The Bank Secrecy Act (“BSA”) and implementing regulations promulgated by the 
Financial Crimes Enforcement Network (“FinCEN”) require that broker-dealers file a SAR to 
report any transaction (or pattern of transactions of which the transaction is a part) conducted or 
attempted by, at, or through the broker-dealer involving or aggregating to at least $5,000 in funds 
or other assets that the broker-dealer knows, suspects or has reason to suspect: (i) involves funds 
derived from illegal activity as part of a plan to violate or evade any federal law or regulation or to 
avoid any transaction reporting requirement; (ii) is designed to evade any requirements of the BSA 
or its implementing regulations; (iii) has no business or apparent lawful purpose and the broker-
dealer knows of no reasonable explanation for the transaction after examining the available facts; 
or (iv) involves use of the broker-dealer to facilitate criminal activity. 31 C.F.R. § 1023.320(a)(2) 
(“SAR Rule”).  
55. The BSA and its implementing regulations require the filing of a SAR no later than 
30 calendar days after the date of the broker-dealer’s initial detection of facts that may constitute a 
basis for filing a SAR. If no suspect is identified on the date of such initial detection, a broker-
dealer may delay filing a SAR for an additional 30 calendar days to identify a suspect, but in no 
case shall reporting be delayed more than 60 calendar days after the date of such initial detection. 

 11 
31 C.F.R. § 1023.320(b). Broker-dealers are generally permitted a period of time for an appropriate 
review before the 30-day clock begins to run, but are directed to begin that review promptly and 
complete it within a reasonable period of time. The SAR Activity Review – Trends, Tips & Issues, 
Issue 15 – In Focus: The Securities and Futures Industry, FinCEN (May 2009).  
56. Exchange Act Rule 17a-8 requires broker-dealers registered with the Commission 
to comply with the reporting, recordkeeping, and record retention requirements of Chapter X of 
Title 31 of the Code of Federal Regulations, which contains the SAR Rule and other requirements. 
The failure to file SARs as required by the SAR Rule is a violation of Section 17(a) of the 
Exchange Act and Rule 17a-8 thereunder. See SEC v. Alpine Sec. Corp., 308 F. Supp. 3d 775, 798-
800 (S.D.N.Y. 2018), aff’d, 982 F.3d 68 (2d Cir. 2020), cert. denied, 142 S.Ct. 461 (2021). 
57. Respondents, as registered broker-dealers, are subject to the SAR Rule. 
Respondents created an anti-money laundering (“AML”) compliance group to fulfill their SAR-
filing obligations and comply with other FinCEN rules.  
58. Respondents had 5.1 million cumulative net funded accounts by the end of 2019, 
12.5 million cumulative net funded accounts by the end of 2020, and 22.7 million cumulative net 
funded accounts by the end of 2021. However, Respondents did not update their AML program 
sufficiently to keep up with this growth. 
59. For example, until mid-2021, in order to detect transactions that needed to be 
reported in SARs, Respondents relied on proprietary surveillance software and the rules that this 
software used to detect potentially suspicious transactions were not reasonably designed to achieve 
compliance with Respondents’ SAR-filing requirements because they generated a large number of 
false positives, artificially increasing the number of alerts to be reviewed.   
60. In addition, until mid-2021, Respondents’ AML personnel relied on a collection of 
spreadsheets and shared folders to track and manage investigations into suspicious activity. As a 
result, Respondents’ AML group’s investigations were often inefficient. 
61. Respondents also failed to assign appropriately experienced staff to handle their 
SAR-filing responsibilities. 
62. Beginning in the first half of 2020, as Respondents experienced a growing volume 
of transactions, Respondents experienced a corresponding surge in the number of transactions that 
were flagged for review as potential suspicious activity. Respondents’ AML group failed to 
promptly review all the transactions that were flagged as potentially suspicious. 
63. By the end of 2020, Respondents had accumulated a backlog of more than 10,000 
potentially suspicious transactions that had been flagged for review in order to make a SAR-filing 
determination but remained unresolved beyond the 45-day deadline in Respondents’ internal 
policies. At that point, Respondents were filing SARs an average of 198 days after initially 
flagging a transaction for investigation.  
64. Beginning in January 2021, Respondents made several improvements to their AML 
compliance functions. Respondents hired managers and other AML personnel with specialized 

 12 
experience in investigating such activity. Respondents updated their procedures, implemented 
additional training and guidance for personnel, implemented a new system for tracking and 
managing investigations, and implemented a new transaction surveillance system. 
65. By June 2021, Respondents were still filing SARs an average of 144 days after a 
potentially suspicious transaction had been flagged for review. By the end of 2021, Respondents 
were filing SARs an average of 125 days after a potentially suspicious transaction had been 
flagged for review. Respondents eliminated their backlog in or around June 2022. 
66. As a result of the conduct described above, from January 2020 through March 
2022, Respondents systematically failed to promptly initiate reviews of potentially suspicious 
transactions, to complete those reviews in a reasonable period of time, and to timely file SARs.  
Identity Theft Prevention 
Respondents Violated Regulation S-ID by Failing to have a Compliant Documented Identity 
Theft Prevention Program. 
 
67. Rule 201 of Regulation S-ID requires registered broker-dealers that offer “covered 
accounts” to develop and implement a written identity theft prevention program (“Program”) 
“designed to detect, prevent, and mitigate identity theft in connection with the opening of a 
covered account or any existing covered account.” 17 C.F.R. § 248.201(d)(1). The Program “must 
be appropriate to the size and complexity of the financial institution...and the nature and scope of 
its activities.” Id. Respondents offer and maintain “covered accounts.” The rule defines a “covered 
account” to include an account that a financial institution or creditor “offers or maintains, primarily 
for personal, family, or household purposes, that involves or is designed to permit multiple 
payments or transactions, such as a brokerage account with a broker-dealer.” 17 C.F.R. 
§ 248.201(b)(3)(i). 
68. A Program must include reasonable policies and procedures to: (i) identify relevant 
identity theft red flags for the covered accounts that the financial institution or creditor maintains, 
and incorporate them into the Program; (ii) detect the red flags that have been incorporated into the 
Program; (iii) respond appropriately to any red flags that are detected to prevent and mitigate 
identity theft; and (iv) ensure that the Program is updated periodically, to reflect changes in risks to 
customers and to the safety and soundness of the financial institution or creditor from identity theft. 
17 C.F.R. § 248.201(d)(2). 
69. Firms must identify identity theft red flags that are appropriate to the size and 
complexity of their business and to the nature and scope of their activities, such as the types of 
covered accounts they offer or maintain, methods they provide to open covered accounts, methods 
they provide to access covered accounts, and their previous experiences with identity theft. 17 
C.F.R. §§ 248.201(d)(1), (f); Appendix A to Subpart C of 17 C.F.R. Part 248. Appendix A to 
Regulation S-ID directs firms to incorporate relevant identity theft red flags from sources like past 
incidents of identity theft that the firm has experienced and methods of identity theft that the firm 
has identified. Appendix A also includes a non-comprehensive list of “illustrative examples” of 
identity theft red flags, which firms may consider incorporating into their Programs in addition to 
the sources described above. 

 13 
70. From at least April 2019 through June 2022, Respondents’ Program did not include 
reasonable written policies and procedures to identify relevant identity theft red flags or describe 
how such red flags were to be identified.  
71. In 2020 and 2021, Respondents experienced a significant escalation in account 
takeovers. However, Respondents did not update their Program during this period to include 
identity theft red flags that were tailored to these incidents. 
72. The identity theft red flags in Respondents’ Program consisted substantially of the 
illustrative examples in Appendix A to Regulation S-ID, and some of them had little relevance to 
Respondents’ business. For example, although Respondents did not accept checks or require 
customers to submit signature cards, one of the red flags listed in the Program was account 
information not matching “a signature card or recent check.”  
73. Respondents’ Program also did not incorporate policies or procedures to ensure that 
it was updated periodically. The Program provided that it should be updated on an annual basis, but 
it was reviewed only once between April 2019 and the end of 2021. That review identified multiple 
problems with the Program, but Respondents did not immediately undertake the corrective actions 
outlined. 
Unauthorized Access to Respondents’ Systems 
Respondents Violated Regulation S-P by Failing to Implement Procedures to Prevent 
Unauthorized Access to Robinhood Systems 
 
74. On June 14, 2021, an unauthorized third party fraudulently persuaded a Robinhood 
employee to download remote access software onto a Robinhood computer and give the actor 
control of the computer. After the session was terminated, Respondents’ security team investigated 
and found no evidence that the unauthorized third party had accessed any sensitive information 
pertaining to Respondents or their customers.  
75. Respondents’ security team subsequently determined that Respondents should 
implement a system for detecting and blocking the installation of unapproved remote access 
software on company computers. On or about June 28, 2021, when the team created its official 
incident report, it listed “Prevent & Detect remote desktop tooling” as a corrective action to be 
undertaken. However, while Respondents blocked the known digital signature of the remote 
desktop tool used in the incident, among other actions, Respondents did not block all unapproved 
remote access software on Robinhood computers until after November 3, 2021. 
76. On November 3, 2021, another unauthorized third party perpetrated a similar attack 
on a different Robinhood employee. The third party called the employee from a spoofed 
Robinhood number and, posing as a Robinhood IT employee, persuaded the employee to 
download a different version of the same remote access software that had been used in the June 14 
attack. After downloading the software, the employee gave the unauthorized third party, whom the 
Robinhood employee believed to be a Robinhood IT employee, remote access to her computer for 
approximately four hours.  

 14 
77. After gaining access to the employee’s computer, the unauthorized party accessed 
Respondents’ confidential front-end systems. The unauthorized party obtained a list of email 
addresses for approximately five million people, and full names for a different group of 
approximately two million people. For a more limited number of people—approximately 310 in 
total—additional personal information, including name, date of birth, and zip code, was exposed, 
with a subset of approximately 10 customers having more extensive account details revealed. 
78. The Safeguards Rule, Rule 30(a) of Regulation S-P, 17 C.F.R. § 248.30, requires 
covered entities, including broker-dealers registered with the Commission, to adopt written policies 
and procedures that address administrative, technical, and physical safeguards for the protection of 
customer records and information. Those policies and procedures must be reasonably designed to: 
(i) ensure the security and confidentiality of customer records and information; (ii) protect against 
any anticipated threats or hazards to the security or integrity of customer records and information; 
and (iii) protect against unauthorized access to or use of customer records or information that could 
result in substantial harm or inconvenience to any customer. Rule 30(a) of Regulation S-P, 17 
C.F.R. § 248.30. 
79. Respondents’ policies and procedures were not reasonably designed to meet the 
requirements of the Safeguards Rule of Regulation S-P. Specifically, Respondents did not 
implement appropriate written policies and procedures reasonably designed to prevent 
unauthorized individuals from gaining access to certain of Respondents’ systems with confidential 
customer information by remotely controlling employees’ computers. By June 2021 at the latest, 
Respondents understood that malicious actors could potentially access confidential systems 
containing customer records and information via installations of unapproved remote access 
software on computers used by Respondents’ personnel. Nonetheless, in November 2021, an 
unauthorized third party used remote access software to gain access to customer records and 
information, which could result in substantial harm or inconvenience to Respondents’ customers. 
Recordkeeping Requirements Under the Exchange Act 
Respondents Failed to Preserve Communications and Corporate Records as Required by 
Exchange Act Section 17(a)(1) and Rules 17a-4(b)(4) and 17a-4(f) 
 
A. Off-Channel Communications Failures 
 
80. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 
requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 
records as necessary or appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Exchange Act. 
81. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 
authority. This rule specifies the manner and length of time that the records made in accordance 
with other Commission rules, and certain other records made by broker-dealers, must be 
maintained and produced promptly to Commission representatives. The rules adopted under 
Section 17(a)(1) of the Exchange Act, including Rule 17a-4(b)(4), require that broker-dealers 
preserve, for at least three years, the first two years in an easily accessible place, originals of all 

 15 
communications received and copies of all communications sent relating to the broker-dealer 
business as such.  
82. The Commission previously has stated that these and other recordkeeping 
requirements “are an integral part of the investor protection function of the Commission, and other 
securities regulators, in that the preserved records are the primary means of monitoring compliance 
with applicable securities laws, including antifraud provisions and financial responsibility 
standards.” Commission Guidance to Broker-Dealers on the Use of Electronic Storage Media 
under the Electronic Signatures in Global and National Commerce Act of 2000 with Respect to 
Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 
1. Respondents’ Policies and Procedures 
83. Respondents maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with the 
relevant recordkeeping provisions.  
84. Respondents’ employees were advised that electronic business communications 
should only be accessed and transmitted through firm-sponsored systems, such as e-mail and a 
firm-approved instant messaging application. The use of unapproved electronic communications 
methods was not permitted, and employees were advised, including through the Respondents’ 
training, that they should not use personal email, chats, or text messaging applications for business 
purposes.  
85. Messages sent through approved communications methods were monitored, subject 
to review, and, when appropriate, archived. Messages sent through unapproved communications 
methods, such as WhatsApp, text messages, and other unapproved applications were generally not 
monitored, subject to review, or archived. 
86. Respondents’ policies were designed to address supervisors’ supervision of 
employees’ training in Respondents’ communications policies and adherence to Respondents’ 
books and recordkeeping requirements. Supervisory policies notified employees that electronic 
communications were subject to surveillance by Respondents.    
87. Respondents, however, failed to implement a sufficient system reasonably expected 
to determine whether all employees, including supervisors, were following Respondents’ policies 
and procedures. While permitting employees to use approved communications methods, including 
on personal phones, for business communications, Respondents failed to implement sufficient 
methods to reasonably determine that their policies were being followed.  
2. Respondents’ Recordkeeping Failures Across Their Brokerage 
Business 
88. Respondents cooperated with the investigation conducted by the Commission’s 
staff by voluntarily providing information about the communications of senior and other broker-
dealer personnel. The Commission staff also reviewed certain text messages that Respondents had 
collected from various employees’ phones. 

 16 
89. The information provided by Respondents showed off-channel communications at 
various seniority levels within Respondents. Some of these personnel sent and received numerous 
off-channel communications involving other Respondents’ personnel and other participants in the 
securities industry.   
90. For example, during the relevant period, a senior Robinhood Securities officer 
exchanged numerous off-channel business-related messages with colleagues and other participants 
in the financial markets. In addition, during the relevant period, a senior Robinhood Financial 
officer exchanged numerous off-channel business-related messages with colleagues and other 
participants in the financial markets. These messages related to Respondents’ broker-dealer 
businesses. 
3. Respondents’ Failure to Preserve Required Records Potentially 
Impacted Commission Matters 
91. Between May 2019 and December 2022, Respondents received and responded to 
Commission subpoenas for documents and records requests in Commission investigations. By 
failing to maintain and preserve required records relating to their broker-dealer businesses, 
Respondents may have deprived the Commission of responsive communications in various 
investigations. 
B. Non-Compliant Retention of Brokerage Data Repositories 
92. Exchange Act Rules 17a-3 and 17a-4 require broker-dealers to make and retain 
books and records related to the operation of their business. These records include trading blotters, 
trade confirmations, records of customer statements, and other information central to the operation 
of a broker-dealer. Exchange Act Rule 17a-4(f) provides that if records required to be maintained 
and preserved subject to Rules 17a-3 and 17a-4 are maintained by means of “electronic storage 
media,” such electronic storage media must preserve the records exclusively in a non-rewritable 
and non-erasable format during defined record retention periods. Broker-dealers often comply with 
this requirement by establishing “Write Once Read Many” (or “WORM”) protocols for record 
retention.
3
 WORM-compliant preservation of data ensures that brokerage data are stored in an 
immutable, auditable format.
 
 
93. Prior to December 2020, Respondents backed up certain operational data using 
WORM-compliant databases. However, in 2020, Respondents made changes to their operational 
databases and, as a result, the WORM backup no longer captured all of this data. Thereafter, 
certain operational databases including Respondents’ (i) systems responsible for security order 
placement, accounting, and position tracking; (ii) system handling all cash movements; and (iii) 
database holding all customer and account information may not have been stored in a compliant 
format. From December 2020 through December 2023, Respondents created WORM-compliant 
                                                 
3
  In October 2022, the Commission adopted amendments to Rule 17a-4 that added the use 
of an audit trail as an alternative to the WORM requirement. During the Relevant Period, 
Respondents did not attempt to implement a system to comply with the audit-trail alternative in 
Rule 17a-4. 

 17 
snapshots of these operational databases but retained those snapshots for retention periods that 
were insufficient to comply with Rule 17a-4. 
94. In addition, for certain other data that Respondents generated, including customer 
statements, trade confirmations, and blue sheet reports, Respondents failed to maintain all of the 
data in a manner that preserves all modifications to and deletions of any record in a non-rewritable 
and non-erasable format for the required record retention periods until December 2023. Although 
Respondents used a cloud-based data storage service for these records that was configured in a 
WORM-compliant manner, the retention period was not properly set to comply with the 
recordkeeping requirements until December 2023.  
C. Customer Email Communications and Account Notifications 
 
95. In addition to failing to properly preserve off-channel communications, from March 
2020 through March 2021, Respondents also failed to preserve certain email communications and 
account notifications that had been automatically generated and sent to customers based on 
templates (“Template Communications”).   
96. Respondents used a third-party software vendor to send Template Communications 
to their customers. In order to preserve these communications as required by Rule 17a-4(b)(4), 
Respondents would simultaneously send them to another third-party vendor to archive them. 
97. In October 2020, Respondents notified the archiving vendor that certain Template 
Communications in March 2020 and August 2020 were not available in the archive. The archiving 
vendor investigated the matter and, in December 2020, notified Respondents that, on certain dates, 
the total number of Template Communications that Respondents had sent exceeded the ingestion 
limit for the archive. As a result, certain Template Communications had not been retained and 
could no longer be retrieved for archiving.  
98. This issue occurred in March 2020, August 2020, September 2020, October 2020, 
January 2021, February 2021, and March 2021. Respondents estimate that, as a result of this 
problem, approximately 1.6 billion Template Communications were not preserved. 
Respondents’ Cooperation and Remedial Efforts 
99. In determining to accept the Offer, the Commission considered Respondents’ 
cooperation with the staff’s investigation and remedial acts undertaken by Respondents as set forth 
below. 
100. To remediate its failures related to EBS submissions, Robinhood Securities 
corrected the coding issues that caused the errors, updated its EBS validation and review processes, 
and revised its written supervisory procedures. Robinhood Securities is in the process of 
resubmitting corrected EBS to the Commission. 
101. To remediate their failures related to their Identity Theft Prevention Program, 
Respondents have implemented and documented a new Program with red flags tailored to 

 18 
Respondents’ business and policies and procedures that provide for the Program to be updated 
periodically. 
102. To remediate their failures related to unauthorized remote access of their systems, 
Respondents blocked the installation and use of remote access software on Respondents’ devices to 
safeguard their systems from unauthorized remote access, implemented additional access controls 
for front-end systems containing customer information, and implemented updated trainings 
regarding social engineering.  
103. To remediate their failures to promptly initiate reviews of potentially suspicious 
transactions and complete those reviews in a reasonable period of time, Respondents retained a 
consultant to review their procedures, upgraded their technology, increased their headcount and 
budget, hired managers and other personnel with relevant experience to investigate suspicious 
activity, revised their procedures for timely investigating and reporting such activity, implemented 
additional trainings and guidance for Respondents’ personnel, implemented a new system for 
tracking and managing investigations, and implemented a new transaction surveillance system. 
104. To remediate their failures to preserve as required records and communications 
related to their businesses as broker-dealers, Respondents revised their policies and procedures for 
compliance with recordkeeping requirements, implemented technological improvements, increased 
training, and engaged a consultant to review their systems and procedures for compliance with 
broker-dealer recordkeeping requirements under the Exchange Act. 
 
Violations and Failure to Supervise 
 
105. As a result of the conduct described above, Robinhood Securities and/or Robinhood 
Financial willfully violated the following provisions of the federal securities laws: 
 
a. Robinhood Securities failed to furnish complete records to the Commission 
staff that were requested by the Commission in its EBS requests. Therefore, 
Robinhood Securities violated the recordkeeping and reporting 
requirements of Section 17(a)(1) of the Exchange Act and Rule 17a-4(j) 
thereunder by failing to furnish promptly true and complete EBS 
information as requested by Commission staff over a period of more than 
five years. In addition, Robinhood Securities willfully violated Exchange 
Act Rule 17a-25 by failing to submit electronically certain securities 
transaction information to the Commission through the EBS system in 
response to requests made by the Commission; 
 
b. Robinhood Securities violated Rule 200(g) of Reg SHO which requires a 
broker or dealer to mark sale orders in all equity securities as “long,” “short,” 
or “short exempt.” An order to sell may be marked “long” only if the seller is 
deemed to own the security being sold, and either the security to be delivered 
is in the physical possession or control of the broker or dealer, or it is 
reasonably expected that the security will be in the physical possession or 

 19 
control of the broker or dealer no later than the settlement of the transaction. 
Reg SHO Rule 200(g)(2) provides that a sale order shall be marked “short 
exempt” only if the provisions of Reg SHO Rule 201(c) or 201(d) are met; 
 
c. Robinhood Securities violated Rule 203(b)(1) of Reg SHO, which prohibits 
a broker or dealer from accepting a short sale order in an equity security 
from another person or effecting a short sale in an equity security for its 
own account unless the broker or dealer has “(i) [b]orrowed the security, or 
entered into a bona-fide arrangement to borrow the security; or (ii) 
[r]easonable grounds to believe that the security [could] be borrowed so 
that it can be delivered on the date delivery is due; and (iii) [d]ocumented 
compliance” with those requirements; 
 
d. Robinhood Securities violated Rule 204(a) of Reg SHO, which requires a 
participant of a registered clearing agency to deliver securities to a 
registered clearing agency for clearance and settlement on a long or short 
sale in any equity security by settlement date, or to close out a fail to deliver 
position resulting from a long or short sale transaction in that equity 
security within certain timeframes; 
 
e. Respondents violated Rule 30(a) of Regulation S-P (17 C.F.R. § 248.30(a)), 
which requires every broker-dealer registered with the Commission to adopt 
written policies and procedures that are reasonably designed to address 
administrative, technical, and physical safeguards for the protection of 
customer records and information; 
 
f. Respondents violated Rule 201 of Regulation S-ID (17 C.F.R. § 248.201), 
which requires registered broker-dealers that offer or maintain covered 
accounts to develop and implement a written Identity Theft Prevention 
Program that is designed to detect, prevent, and mitigate identity theft in 
connection with the opening of a covered account or any existing covered 
account; 
 
g. Respondents violated Section 17(a) of the Exchange Act and Exchange 
Act Rule 17a-8, which require broker-dealers to comply with the 
reporting, recordkeeping, and record retention requirements of Chapter X 
of Title 31 of the Code of Federal Regulations by failing to timely file 
SARs during the relevant period; 
 
h. Respondents violated Section 17(a) of the Exchange Act and Exchange 
Act Rule 17a-4(b)(4), which require a broker-dealer to preserve in a non-
erasable format for at least three years, the first two years in an easily 
accessible place, originals of all communications received and copies of all 
communications sent relating to their business as such; and 
 

 20 
i. Respondents violated Section 17(a) of the Exchange Act and Exchange 
Act Rule 17a-4, which require broker-dealers to preserve documents and 
data required to be made pursuant to Exchange Act Rule 17a-3. 
 
106. As a result of the conduct described above, Respondents failed reasonably to 
supervise their employees, with a view to preventing or detecting certain of their supervised 
persons’ aiding and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder, within the meaning of Section 15(b)(4)(E). 
 
Undertakings 
 
A. Reg SHO Compliance 
 
Respondent Robinhood Securities has undertaken to do the following: 
 
107. Certification. Within seven (7) days of the entry of the Order, Robinhood Securities 
shall certify in writing that it has remediated the following deficiencies resulting in Robinhood 
Securities’ mismarking of sale transactions and violation of the locate requirement: 
a. Inability to calculate the firm’s net position at time of sale order such that 
Robinhood Securities could make accurate order-marking determinations. 
b. Mismarking Fractional Shares riskless principal orders “long” based on 
customer’s underlying position, without regard to the firm’s net position. 
c. Mismarking Fractional Shares riskless principal orders “short exempt” 
when Robinhood Securities did not meet all conditions of Rule 201(d)(6). 
d. Failing to fulfill the locate requirement for Fractional Trading and 
Recurring Orders principal short sale orders. 
 
B. Off-Channel Communications 
 
108. Prior to this action, Respondents enhanced their policies and procedures, and increased 
training concerning the use of approved communications methods, including on 
personal devices. In addition, Respondents have undertaken to: 
109. Internal Audit. Within one hundred eighty (180) days of the entry of this Order, 
Respondents shall require that their Internal Audit function initiate an audit, to be 
completed within three hundred sixty-five (365) days of the entry of this Order 
consisting of the following:  
a. A comprehensive review of Respondents’ supervisory, compliance, and other 
policies and procedures designed to ensure that Respondents’ electronic 
communications, including those found on personal electronic devices, 
including without limitation, cellular phones (“Personal Devices”), are 

 21 
preserved in accordance with the requirements of the federal securities laws. 
This review should include, but not be limited to, a review of Respondents’ 
policies and procedures to ascertain if they provide for any significant 
technology and/or behavioral restrictions that help prevent the risk of the use of 
unapproved communications methods on Personal Devices in work conditions 
(e.g., traveling, site visits). 
b. A comprehensive review of training conducted by Respondents to ensure 
personnel are complying with the requirements regarding the preservation of 
electronic communications, including those found on Personal Devices, in 
accordance with the requirements of the federal securities laws, including by 
ensuring that Respondents’ personnel certify in writing on a quarterly basis that 
they are complying with preservation requirements.  
c. An assessment of the surveillance program measures implemented by 
Respondents to ensure compliance, on an ongoing basis, with the requirements 
found in the federal securities laws to preserve electronic communications, 
including those found on Personal Devices. 
d. An assessment of the technological solutions that Respondents have begun 
implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that Respondents’ personnel will 
use the technological solutions going forward and a review of the measures 
employed by Respondents to track employee usage of new technological 
solutions.  
e. A comprehensive review of the framework adopted by Respondents to address 
instances of non-compliance by Respondents’ employees with their policies and 
procedures concerning the use of Personal Devices to communicate about 
Respondents’ business in the past. This review shall include a survey of how 
Respondents determined which employees failed to comply with their policies 
and procedures, the corrective action carried out, an evaluation of who violated 
policies and why, what penalties were imposed, and whether penalties were 
handed out consistently across business lines and seniority levels.   
 
110. Recordkeeping. Respondents shall preserve, for a period of not less than five (5) years 
from the end of the fiscal year last used, the first two (2) years in an easily accessible 
place, any record of compliance with these undertakings, including any materials 
supporting the certifications made pursuant to paragraph 111, below. 
111. Certification. Respondents shall certify, in writing, compliance with the undertakings 
set forth above in paragraphs 109-110. The certification shall identify the undertakings 
and provide written evidence of compliance in the form of a narrative. The 
Commission staff may make reasonable requests for further evidence of compliance, 
and Respondents agree to provide such evidence. The certification shall be submitted to 

 22 
Joseph Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and 
Exchange Commission, 100 Pearl Street, Suite 20-100, New York, NY 10004, or such 
other person as the Commission staff may request, with a copy to the Office of Chief 
Counsel of the Enforcement Division, no later than sixty (60) days from the date of 
completion of the undertakings. 
In determining whether to accept the Offers, the Commission has considered these 
undertakings. 
 
IV. 
 
In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondents’ Offers. 
 
A. Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act it is hereby 
ORDERED that: 
 
a. Respondent Robinhood Securities cease and desist from committing or 
causing any violations and any future violations of Section 17(a)(1) of the 
Exchange Act and Rules 17a-4(j) and 17a-25 promulgated thereunder. 
 
b. Respondent Robinhood Securities cease and desist from committing or 
causing any violations and any future violations of Rules 200(g), 203(b)(1), 
and 204(a) of Reg SHO. 
 
 
c. Respondents cease and desist from committing or causing any violations and 
any future violations of Rule 30(a) of Regulation S-P (17 C.F.R. 
§ 248.30(a)). 
 
d. Respondents cease and desist from committing or causing any violations and 
any future violations of Rule 201 of Regulation S-ID (17 C.F.R. § 248.201). 
 
e. Respondents cease and desist from committing or causing any violations and 
any future violations of Section 17(a) of the Exchange Act and Rules 17a-4, 
17a-4(b)(4), and 17a-8 thereunder. 
 
B. Respondents are censured. 
 
C. Robinhood Financial shall, within 14 days of the entry of this Order, pay a 
civil money penalty in the amount of $11,500,000 to the Securities and Exchange 
Commission for transfer to the general fund of the United States Treasury, subject to 
Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall 
accrue pursuant to 31 U.S.C. § 3717.   
 
The penalty ordered against Robinhood Financial represents: 

 23 
 
(1) $6,500,000 for its violations of Exchange Act Section 17(a) and 
Exchange Act Rule 17a-8,  
(2) $4,000,000 for its violations of Exchange Act Section 17(a) and 
Exchange Act Rules 17a-4 and 17a-4(b)(4); and  
(3) $1,000,000 for its violations of Rule 30(a) of Regulation S-P (17 
C.F.R. § 248.30(a)) and Rule 201 of Regulation S-ID (17 C.F.R. 
§ 248.201). 
 
D. Robinhood Securities shall, within 14 days of the entry of this Order, pay a 
civil money penalty in the amount of $33,500,000 to the Securities and Exchange 
Commission for transfer to the general fund of the United States Treasury, subject to 
Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall 
accrue pursuant to 31 U.S.C. § 3717.  
 
The penalty ordered against Robinhood Securities represents: 
 
(1) $7,000,000 for its violations of Section 17(a)(1) of the Exchange Act 
and Exchange Act Rules 17a-4(j) and 17a-25;  
(2) $15,000,000 for its violations of Rules 200(g), 203(b)(1), and 204(a) 
of Reg SHO. 
(3) $6,500,000 for its violations of Exchange Act Section 17(a) and 
Exchange Act Rule 17a-8,  
(4) $4,000,000 for its violations of Exchange Act Section 17(a) and Rules 
17a-4 and 17a-4(b)(4); and  
(5) $1,000,000 for its violations of Rule 30(a) of Regulation S-P (17 
C.F.R. § 248.30(a)) and Rule 201 of Regulation S-ID (17 C.F.R. 
§ 248.201). 
 
Payment must be made in one of the following ways: 
 
(1) Respondents may transmit payment electronically to the 
Commission, which will provide detailed ACH transfer/Fedwire 
instructions upon request; 
 
(2) Respondents may make direct payment from a bank account via 
Pay.gov through the SEC website at 
http://www.sec.gov/about/offices/ofm.htm; or 
 
(3) Respondents may pay by certified check, bank cashier’s check, or 
United States postal money order, made payable to the Securities and 
Exchange Commission and hand-delivered or mailed to: 
 
Enterprise Services Center  
Accounts Receivable Branch  

 24 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard  
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Robinhood Financial and Robinhood Securities as Respondents in these proceedings, and the file 
number of these proceedings; a copy of the cover letter and check or money order must be sent to 
Joseph Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and Exchange 
Commission, 100 Pearl Street, Suite 20-100, New York, NY 10004. 
 
E. Amounts ordered to be paid as civil money penalties pursuant to this Order 
shall be treated as penalties paid to the government for all purposes, including all tax 
purposes. To preserve the deterrent effect of the civil penalty, Respondents agree that in any 
Related Investor Action, they shall not argue that they are entitled to, nor shall they benefit 
by, offset or reduction of any award of compensatory damages by the amount of any part of 
Respondents’ payment of a civil penalty in this action (“Penalty Offset”). If the court in any 
Related Investor Action grants such a Penalty Offset, Respondents agree that they shall, 
within 30 days after entry of a final order granting the Penalty Offset, notify the 
Commission’s counsel in this action and pay the amount of the Penalty Offset to the 
Securities and Exchange Commission. Such a payment shall not be deemed an additional 
civil penalty and shall not be deemed to change the amount of the civil penalty imposed in 
this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondents by or on behalf of one or more investors based 
on substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
By the Commission. 
 
Vanessa A. Countryman 
Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 102170 / January 13, 2025 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22405 

 

 

In the Matter of 

 

Robinhood Financial LLC and 

Robinhood Securities, LLC 

 

Respondents. 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 15(b) AND 21C 

OF THE SECURITIES EXCHANGE ACT OF 

1934, MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER  

   

 

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), against Robinhood Financial LLC (“Robinhood Financial”) and Robinhood Securities, LLC 

(“Robinhood Securities”) (collectively “Respondents”).  

 

II. 

 

 In anticipation of the institution of these proceedings, Respondents have submitted Offers 

of Settlement (the “Offers”) that the Commission has determined to accept. Robinhood Financial 

admits the facts set forth in Section III paragraphs 80-91 below, acknowledges that its conduct 

violated Section 17(a)(1) of the Exchange Act and Rule 17a-4(b)(4) thereunder, admits the 

Commission’s jurisdiction over it and the subject matter of these proceedings, and, without 

admitting or denying any of the other findings contained herein, consents to the entry of this Order 

Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C 

of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist Order (“Order”), as set forth below. Robinhood Securities admits the facts set 

forth in Section III paragraphs 14-19 and 80-91 below, acknowledges that its conduct violated 

Section 17(a)(1) of the Exchange Act and Rules 17a-4(b)(4), 17a-4(j), and 17a-25 thereunder, 

admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and, 

without admitting or denying any of the other findings contained herein, consents to the entry of 

this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) 



 2 

and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial 

Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 

 

III. 

 

 On the basis of this Order and Respondents’ Offers, the Commission finds1 that  

 

Summary 

 

1. These proceedings arise out of Respondents’ violations of federal statutes and 

regulations related to blue sheet filing, short selling, identity theft, recordkeeping, and suspicious 

activity reporting between at least 2018 and April 2024 (the “Relevant Period”). 

2. Robinhood Financial and Robinhood Securities are the two broker-dealers 

responsible for accepting orders and executing trades on the Robinhood trading application or 

website. For investors using the application or website, Robinhood Financial serves as an 

introducing broker-dealer, and Robinhood Securities serves as the clearing and, in some 

circumstances described below, executing broker-dealer. During the Relevant Period, Respondents 

committed the following securities law violations: 

3. Electronic Blue Sheets: Robinhood Securities failed to submit to the Commission 

complete and accurate data in response to Commission staff electronic blue sheets (“EBS”) 

requests, resulting in the reporting of EBS that were incomplete or deficient. From at least October 

2018 through April 2024 (the “EBS Relevant Period”), in response to requests from the 

Commission, Respondent made at least 11,849 EBS submissions to the Commission that contained 

inaccurate information or omissions, resulting from eleven types of errors. Those errors resulted in 

the misreporting of EBS data for at least 392 million transactions.  

 

4. Fractional Share Trading and Stock Lending: Robinhood Securities failed to 

comply with Regulation SHO (“Reg SHO”) in connection with stock lending and fractional trading 

programs. From May 2019 until March 2020, Robinhood Securities did not timely close out fails 

to deliver resulting from its stock lending activities. Additionally, from at least December 2019 

until December 2023, Robinhood Securities effected millions of principal short sales relating to 

fractional shares trades that it mismarked as “long” because it lacked the ability to calculate its net 

proprietary position at the time of its sale orders. From December 2019 until May 2022, 

Robinhood securities mismarked millions of short sale riskless principal orders relating to 

fractional share trades as “long” because it improperly marked the orders based on its customers’ 

positions rather than its proprietary positions. Then, from May 2022 until December 2023, 

Robinhood Securities mismarked an additional 4.5 million riskless principal orders relating to 

fractional shares trades as “short exempt” even though Robinhood Securities did not satisfy all the 

conditions for doing so. 

                                                 
1  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  

 



 3 

5. Suspicious Activity Reporting: From January 2020 through March 2022, during a 

surge of customer trading activity, Respondents did not promptly initiate reviews of potentially 

suspicious activity or complete those reviews in reasonable periods of time. As a result, 

Respondents did not file Suspicious Activity Reports (“SARs”) in many instances until multiple 

months after the activity in question had been flagged for review. 

6. Identify Theft Prevention: From April 2019 through June 2022, Respondents failed 

to implement adequate policies and procedures designed to detect, prevent, and mitigate identity 

theft in connection with their customers’ accounts.   

7. Unauthorized Remote Access to Robinhood Systems: From at least June 28, 2021 

through November 3, 2021, Respondents failed to adequately address known risks posed by a 

vulnerability relating to remote access to their systems. On November 3, 2021, a third party 

obtained unauthorized access to certain of Respondents’ front-end systems and downloaded 

information related to millions of individuals who had provided this information to Respondents. 

8. Off-Channel Communications: The federal securities laws impose recordkeeping 

requirements on broker-dealers to ensure they responsibly discharge their crucial role in our 

markets. Respondents failed to adhere to certain of these essential requirements and their own 

policies and procedures. Using their personal devices, certain of Respondents’ personnel 

communicated both internally and externally by text messages and/or other unapproved written 

communications platforms (“off-channel communications”). From at least January 2019, some of 

Respondents’ employees sent and received off-channel communications that were records required 

to be maintained and preserved. Respondents did not maintain or preserve many of these written 

communications.  

9. Retention of Brokerage Data: Respondents failed to implement systems sufficient 

to comply with recordkeeping obligations applicable to broker-dealers that are registered with the 

Commission. Although Respondents used backup systems for their brokerage data to prevent data 

loss, between December 2020 and December 2023, Respondents failed to maintain copies of their 

core operational databases in a manner that ensured that legally-required records were protected 

from being intentionally or inadvertently deleted or modified for the required length of time.   

10. Failure to Maintain Customer Communications: Respondents failed to maintain 

certain customer communications for several months between 2020 and 2021. At the time, 

Respondents were using a third-party vendor to archive such communications. Because the total 

number of messages sent for archiving exceeded the limit the vendor had in place for processing 

them, some of the messages were not archived by the vendor in real time as intended. Respondents 

detected this failure in October 2020 and remediated it in March 2021. 

11. As a result of the conduct described above, Robinhood Financial willfully2 violated 

Rule 30(a) of Regulation S-P; Rule 201 of Regulation S-ID; Section 17(a) of the Exchange Act and 

                                                 

2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act 

“means no more than that the person charged with the duty knows what he is doing.” Wonsover v. 



 4 

Rules 17a-4, 17a-4(b)(4), and 17a-8 thereunder. Additionally, through the above conduct, 

Robinhood Securities willfully violated Rule 30(a) of Regulation S-P; Rule 201 of Regulation S-

ID; Section 17(a)(1) of the Exchange Act and Rules 17a-4, 17a-4(b)(4), 17a-4(j), 17a-8, and 17a-

25 thereunder; and Rules 200(g), 203(b)(1), and 204(a) of Reg SHO. 

Respondents 

 

12. Robinhood Financial is a Delaware LLC with its principal place of business in Lake 

Mary, Florida. Robinhood Financial is a Commission-registered broker-dealer and a member of the 

Financial Industry Regulatory Authority (“FINRA”). Robinhood Financial maintains accounts for 

customers and serves as their introducing broker. 

13. Robinhood Securities is a Delaware LLC with its principal place of business in 

Lake Mary, Florida. Robinhood Securities is a Commission-registered broker-dealer and a member 

of FINRA. Robinhood Securities serves as the clearing and, in some circumstances described 

below, executing broker-dealer for Robinhood Financial customer accounts. 

Electronic Blue Sheets 

Robinhood Securities Made Deficient Blue Sheet Filings 

 

14. Commission staff routinely sends requests for securities trading records to market 

makers, broker-dealers and/or clearing firms in order to review trading activity, and firms provide 

the requested records in a universal electronic format known as the EBS format. It is a fundamental 

obligation of broker-dealers to provide complete and accurate EBS data when requested by 

representatives of the Commission to do so. The submission of complete and accurate EBS data is 

critical to many aspects of the Commission’s operations and its ability to discharge its enforcement 

and regulatory mandates. The failure of a broker-dealer to provide complete and accurate EBS 

information in response to a Commission request can impact the Commission’s ability to discharge 

its statutory obligations, undermine the integrity of its investigations and examinations, and 

ultimately interfere with the Commission’s ability to protect investors. 

15. During the EBS Relevant Period, in response to requests from the Commission, 

Robinhood Securities made at least 11,849 EBS submissions to the Commission that contained 

inaccurate information or omissions, resulting from eleven types of errors. Those errors resulted in 

the misreporting of EBS data for at least 392 million transactions.   

16. Robinhood Securities’ submissions during the EBS Relevant Period, among other 

things, omitted responsive transactions, contained duplicate transactions, and/or contained 

inaccurate information about securities transactions reported, including with respect to EBS fields 

for the primary party identifier, contra party identifier, exchange code, order execution time, 

transaction type identifier, and/or the net amount of sale proceeds or purchase costs. Many 

transaction records were affected by more than one type of error.   

                                                 

SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 

1949)). 



 5 

17. The errors in Robinhood Securities’ EBS were caused, in large part, by coding 

issues in its EBS reporting and fractional trading systems, as well as Robinhood Securities’ 

misinterpretation of the guidance governing EBS submissions. For example, due to Robinhood 

Securities’ misinterpretation of EBS-related guidance, it misreported (i) the primary party identifier 

for Robinhood Financial as “HOOD” instead of “CRFN,” which impacted at least 365 million 

transactions; and (ii) the options exchange code and options contra party identifier information for 

at least 27 million transactions. EBS reporting coding errors resulted in Robinhood Securities’: (i) 

misreporting of the contra-party identifier as “RHS” instead of the appropriate MPID, CRD, or 

OCC clearing number, which impacted at least 106 million transactions in which a principal trade 

was executed against a customer account; (ii) failure to report at least 50 million transactions made 

in proprietary accounts used to facilitate customer orders; and (iii) submission of duplicates of at 

least 6 million transactions. Moreover, due to a programming issue in the net amount field, 

approximately 71,000 transactions with a notional value of less than one half of one cent were 

improperly rounded down to zero. 

18. Certain of Robinhood Securities’ EBS errors stemmed from the systems that 

Robinhood Securities used to process fractional share transactions. As a result of coding issues in 

its fractional trading system, Robinhood Securities misreported the order execution time for at least 

59 million transactions. Due to another coding error, Robinhood Securities provided erroneous 

transaction type identifier information for at least 47 million transactions.   

19. At the time of its EBS submissions, Robinhood Securities did not detect the above 

errors at least in part because it did not have reasonable policies and procedures to verify that all of 

the information it was reporting was accurate. For example, Robinhood Securities failed to 

maintain adequate policies and procedures regarding the submission of EBS data for at least a part 

of the EBS Relevant Period. Robinhood also failed to conduct adequate periodic sampling and 

manual validation, and did not have proper quality controls in place to ensure the completeness and 

accuracy of its EBS data prior to its submissions. Because Robinhood Securities lacked adequate 

policies and procedures for validating the accuracy of the information reported in its EBS 

submissions, personnel at Robinhood Securities did not recognize the issues that led to its systemic 

reporting of deficient EBS information. 

Reg SHO 

Robinhood Securities Violated Reg SHO in its Stock Lending Business and Fractional Trading 

and Recurring Orders Activities 

A. Reg SHO 

20. Reg SHO Rule 203(b)(1) prohibits a broker or dealer from accepting a short sale 

order in an equity security from another person, or effecting a short sale in an equity security for its 

own account, unless the broker or dealer has borrowed the security, entered into a bona fide 

arrangement to borrow the security, or has “[r]easonable grounds” to believe the security can be 

borrowed so that it can be delivered on the date delivery is due. This is generally referred to as the 

“locate” requirement. 



 6 

21. Reg SHO Rule 200(g) requires a broker or dealer to mark all sell orders of any 

equity security as “long,” “short,” or “short exempt.” An order to sell may be marked “long” only 

if the seller is deemed to own the security being sold pursuant to paragraphs (a) through (f) of Reg 

SHO Rule 200 and either the security to be delivered is in the physical possession or control of the 

broker or dealer, or it is reasonably expected that the security will be in the physical possession or 

control of the broker or dealer no later than the settlement of the transaction. Reg SHO Rule 200(c) 

provides that a person shall be deemed to own securities only to the extent he has a net long 

position in such securities. 

22. Reg SHO Rule 204(a) requires a participant of a registered clearing agency to 

deliver securities to a registered clearing agency for clearance and settlement on a long or short 

sale in any equity security by settlement date, or to close out a fail to deliver position resulting 

from a long or short sale transaction in that equity security within certain timeframes by borrowing 

or purchasing securities of like kind and quantity. 

B. Robinhood Securities Failed to Comply with Reg SHO Rule 204(a)’s Requirement to 

Close Out Fails to Deliver Resulting From its Stock Lending Business 

23. At all relevant times, Robinhood Securities has been a broker-dealer and 

participant of the National Securities Clearing Corporation (“NSCC”), a registered clearing 

agency. Thus, Robinhood Securities is subject to Rule 204(a)’s close out requirements whenever 

Robinhood Securities has a fail to deliver to NSCC on long or short sales in any equity security. 

24. In late 2018, Robinhood Securities began developing a new stock lending business 

that would allow it to earn interest from counterparties in exchange for lending out securities 

owned by its customers. 

25. During the development phase, Robinhood Securities understood that the stock 

lending business was likely to cause fails to deliver to NSCC when Robinhood Securities 

customers sold shares of equity securities that the customer owned but that Robinhood Securities 

had loaned to a third-party borrower. 

26. Rule 204(a) applied to these customer sales and required Robinhood Securities to 

(i) ensure delivery of such customer-owned shares by the settlement date of the customer’s long 

sale order, or (ii) ensure timely close out of resulting fail to deliver positions as required by Rule 

204(a). 

27. Robinhood Securities, however, concluded that Rule 204(a) did not apply, and, 

therefore, did neither. Robinhood Securities recalled stock loans in response to delivery obligations 

arising from customer sale orders, and those recalls generally prevented prolonged fails to deliver, 

but the recalled shares were not always returned in time to satisfy Robinhood Securities’ delivery 

and close-out obligations. As a result, from approximately May 2019, when it launched stock 

lending, to March 2020, Robinhood Securities systematically incurred fails to deliver to NSCC that 

were not closed out in accordance with Rule 204(a)’s requirements.  



 7 

28. In early 2020, FINRA examiners identified this deficiency in Robinhood Securities’ 

stock lending program. In response, by March 2020, Robinhood Securities had developed and 

implemented procedures to address compliance with Rule 204(a). 

C. Robinhood Securities’ Fractional Shares Trading Programs Led to Violations of Reg 

SHO’s Order Marking and Locate Requirements 

29. During the period December 2019 through May 2020, Robinhood Financial and 

Robinhood Securities gradually rolled out fractional share trading (“Fractional Trading”), which 

allowed Robinhood Financial customers to place orders to buy and sell fractions of shares of 

certain securities.  

30. Beginning in January 2020, Robinhood Financial expanded Fractional Trading to 

permit customers to place orders to buy or sell certain securities in a specified notional quantity— 

i.e., a specific amount in dollars.  

31. In that same time frame, Robinhood Financial began allowing customers to 

automatically re-invest dividends and make recurring purchase orders in notional amounts 

(collectively, the “Recurring Orders”). 

32. Robinhood Financial designed its Fractional Trading system to allow customers to 

sell only up to the number of shares or notional amount held in their account. 

33. Robinhood Securities served as the executing broker for the customers’ Fractional 

Trading and Recurring Orders, facilitating the customers’ orders through principal and riskless 

principal orders as detailed below. 

a. Robinhood Securities’ Inability to Calculate its Net Position Caused It to 

Inaccurately Mark Principal Short Sale Orders as “Long” and Fail to 

Perform Locates 

34. Reg SHO Rule 200(f) requires a broker-dealer to determine its net position in a 

security by aggregating all of its positions in such security at the time of entering a sale order in 

that security. From at least mid-2019 until June 2023, Robinhood Securities did not have systems 

in place to aggregate all of its positions and properly determine its net position in an equity security 

at the time it entered a principal sale order.  

35. Due to its inability to determine its net position at the time of order entry, 

Robinhood Securities was unable to accurately mark such sell orders as “long” or “short” in 

accordance with Rule 200(g). Robinhood Securities also did not have systems in place to obtain 

required Rule 203(b) locates for such principal short sales. 

36. From December 2019 until December 2023, Robinhood Securities placed sell 

orders as principal to facilitate customer Fractional Trading and Recurring Orders. From December 

2019 until June 2023, Robinhood Securities marked all such transactions “long” even though it 

could not determine the firm’s net position in the security being sold. 



 8 

37. By at least October 2020, Robinhood Securities was incurring intra-day net short 

positions that were causing it to incorrectly mark principal short sale orders relating to Fractional 

Trading and Recurring Orders as “long.” The monthly incidence of incorrectly marked principal 

short sale orders peaked in February 2021 at more than four million. Robinhood Securities did not 

comply with the locate requirement for any of its mismarked Fractional Trading and Recurring 

Orders principal short sale orders.  

38. In March 2021, Robinhood Securities took remedial action to address the Fractional 

Trading principal short sale orders. First, Robinhood Securities adjusted the coding of the 

Fractional Trading program to prevent specific scenarios that led to principal short sales occurring. 

Second, it added a static inventory in the stocks that were made available through Fractional 

Trading, which further prevented principal short sales from occurring. Robinhood Securities’ 

remedial actions substantially reduced, but did not eliminate, the number of Fractional Trading 

principal short sales that were mismarked as long.  

39. From June 2021 to June 2023, Robinhood Securities understood its remedial 

actions may not prevent the possibility of principal short sales from occurring. During that time, 

Robinhood Securities continued facilitating Fractional Trading and Recurring Orders through a 

default order mark of “long” for all principal sale orders, while it continued to monitor for 

incidence of short sales and consider further remedial actions. 

40. From June 2023 through December 2023, Robinhood Securities implemented a 

new system that allowed Robinhood Securities to calculate its net position in a security within and 

across all of its accounts at the time of its entry of sale orders, including Fractional Trading and 

Recurring Order sale orders, so as to comply with the Reg SHO order marking and locate 

requirements discussed above. 

41. From December 2019 until December 2023, Robinhood Securities mismarked more 

than 15 million principal short sales as “long.” 

b. Reg SHO Violations Relating to Riskless Principal Transactions 

i. Robinhood Securities Improperly Marked Short Sale Riskless 

Principal Orders “Long” Based on Customers’ Positions 

42. Reg SHO Rule 201(a)(8) states that the term “riskless principal” shall mean a 

transaction in which a broker or dealer, after having received an order to buy a security, purchases 

the security as principal at the same price to satisfy the order to buy, exclusive of any explicitly 

disclosed markup or markdown, commission equivalent, or other fee, or, after having received an 

order to sell, sells the security as principal at the same price to satisfy the order to sell, exclusive of 

any explicitly disclosed markup or markdown, commission equivalent, or other fee. 

43. When Robinhood Financial launched Fractional Trading in December 2019, 

Robinhood Securities’ systems were designed to facilitate customer orders through a combination 

of riskless principal transactions and principal transactions. (All references to riskless principal 

sales orders in this section refer to Fractional Trading riskless principal sale orders.) For example, 

if a Robinhood Financial customer placed an order to sell 100.5 shares of a security, Robinhood 



 9 

Securities would sell 100 shares to market makers on a riskless principal basis in a “street leg” 

transaction. Robinhood Securities then would execute the balance of the order as principal by 

purchasing 0.5 shares from the customer. 

44. Robinhood Securities designed its systems to mark its “street leg” riskless principal 

sales effected as part of Fractional Trading as “long” based on the position of Robinhood 

Financial’s customer whose order Robinhood Securities was effectuating, which always was long. 

However, Reg SHO Rule 200(g) required Robinhood Securities to mark its “street leg” riskless 

principal sales based upon its own net position in the security at the time of order entry. 

45. In February 2022, Robinhood Securities realized it was improperly marking 

Fractional Trading riskless principal sale orders based on its customers’ underlying positions in the 

related customer sale order rather than Robinhood Securities’ net position.  

46. Between February 2022 and May 2022, Robinhood Securities implemented several 

remedial measures, including (i) an increase in static inventory to reduce the number of riskless 

principal sales for which Robinhood Securities would be in a net short position at the time of the 

sale; (ii) a shift to marking riskless principal orders “long” only if Robinhood Securities’ net 

beginning of day position for the security was long in the full amount of the order; and (iii) 

utilization of a “short exempt” order mark when Robinhood Securities believed it was, based on its 

beginning of day position, effecting a riskless principal sale from a net short position. 

47. These measures combined to substantially reduce the occurrence of riskless 

principal orders that Robinhood Securities mismarked as “long.” However, they did not ensure full 

Reg SHO compliance. Specifically, Robinhood Securities’ use of its beginning of day positions for 

marking its riskless principal orders “long” or “short” did not ensure compliance with Rule 200(g), 

which required Robinhood Securities to mark its riskless principal orders based on its net position 

at the time of the order. Thus, Robinhood Securities continued to mark some riskless principal 

orders “long” when it was in a net short position at the time of the order. Additionally, as set forth 

below, Robinhood Securities did not fully meet Reg SHO’s explicit conditions for using the “short 

exempt” order mark when it began using that order mark in May 2022. 

48. From December 2019 until May 2022, Robinhood Securities mismarked as “long” 

over 58 million Fractional Trading riskless principal short sale orders based on its customers’ 

underlying positions when it should have marked the orders “short” based on its net position.  

ii. Robinhood Securities Improperly Marked Short Sale Riskless 

Principal Orders and Short Sale Principal Orders as “Short 

Exempt” 

49. Reg SHO Rule 200(g)(2) provides that a sale order shall be marked “short exempt” 

only if the provisions of Reg SHO Rule 201(c) or 201(d) are met. 

50. Reg SHO Rule 201(d)(6) discusses instances in which a broker or dealer effects the 

execution of a customer “long” sale order on a riskless principal basis. It provides that a broker or 

dealer may mark a short sale order of a covered security “short exempt” if the broker or dealer has 

a reasonable basis to believe that the short sale order is by a broker or dealer effecting the 



 10 

execution of a customer purchase or the execution of a customer “long” sale on a riskless principal 

basis. A broker or dealer must have written policies and procedures in place to assure that, at a 

minimum: (i) the customer order was received prior to the offsetting transaction; (ii) the offsetting 

transaction is allocated to a riskless principal or customer account within 60 seconds of execution; 

and (iii) the broker or dealer has supervisory systems in place to produce records that enable the 

broker or dealer to accurately and readily reconstruct, in a time-sequenced manner, all orders on 

which a broker or dealer relies pursuant to this exception. 

51. Robinhood Securities’ use of “short exempt” from May 2022 until December 2023 

did not meet the conditions of Rule 201(d)(6) because Robinhood Securities did not have the 

required written policies and procedures. In December 2023, Robinhood Securities implemented 

written policies and procedures that met Rule 201(d)(6)’s requirement for using the “short exempt” 

order mark for riskless principal sales. 

52. In addition, Robinhood Securities applied the “short exempt” mark to certain 

principal short sale orders that did not meet the conditions for that mark because Robinhood 

Securities allocated the street leg sale orders to its customers at a different price from the one 

Robinhood Securities received from the street. Because of such price disparity, transactions failed 

to meet the definition of riskless principal in Rule 201(a)(8) and therefore did not qualify for “short 

exempt” order marking under Rule 201(d)(6). Robinhood Securities also remediated this issue. 

53. From May 2022 until December 2023, Robinhood Securities mismarked over 4.5 

million riskless principal orders (and in some instances principal orders) “short exempt” when it 

should have marked them short.  

Suspicious Activity Reporting 

Respondents Violated Exchange Act Section 17(a) and Rule 17a-8 by Failing to Timely File 

SARs 

 

54. The Bank Secrecy Act (“BSA”) and implementing regulations promulgated by the 

Financial Crimes Enforcement Network (“FinCEN”) require that broker-dealers file a SAR to 

report any transaction (or pattern of transactions of which the transaction is a part) conducted or 

attempted by, at, or through the broker-dealer involving or aggregating to at least $5,000 in funds 

or other assets that the broker-dealer knows, suspects or has reason to suspect: (i) involves funds 

derived from illegal activity as part of a plan to violate or evade any federal law or regulation or to 

avoid any transaction reporting requirement; (ii) is designed to evade any requirements of the BSA 

or its implementing regulations; (iii) has no business or apparent lawful purpose and the broker-

dealer knows of no reasonable explanation for the transaction after examining the available facts; 

or (iv) involves use of the broker-dealer to facilitate criminal activity. 31 C.F.R. § 1023.320(a)(2) 

(“SAR Rule”).  

55. The BSA and its implementing regulations require the filing of a SAR no later than 

30 calendar days after the date of the broker-dealer’s initial detection of facts that may constitute a 

basis for filing a SAR. If no suspect is identified on the date of such initial detection, a broker-

dealer may delay filing a SAR for an additional 30 calendar days to identify a suspect, but in no 

case shall reporting be delayed more than 60 calendar days after the date of such initial detection. 



 11 

31 C.F.R. § 1023.320(b). Broker-dealers are generally permitted a period of time for an appropriate 

review before the 30-day clock begins to run, but are directed to begin that review promptly and 

complete it within a reasonable period of time. The SAR Activity Review – Trends, Tips & Issues, 

Issue 15 – In Focus: The Securities and Futures Industry, FinCEN (May 2009).  

56. Exchange Act Rule 17a-8 requires broker-dealers registered with the Commission 

to comply with the reporting, recordkeeping, and record retention requirements of Chapter X of 

Title 31 of the Code of Federal Regulations, which contains the SAR Rule and other requirements. 

The failure to file SARs as required by the SAR Rule is a violation of Section 17(a) of the 

Exchange Act and Rule 17a-8 thereunder. See SEC v. Alpine Sec. Corp., 308 F. Supp. 3d 775, 798-

800 (S.D.N.Y. 2018), aff’d, 982 F.3d 68 (2d Cir. 2020), cert. denied, 142 S.Ct. 461 (2021). 

57. Respondents, as registered broker-dealers, are subject to the SAR Rule. 

Respondents created an anti-money laundering (“AML”) compliance group to fulfill their SAR-

filing obligations and comply with other FinCEN rules.  

58. Respondents had 5.1 million cumulative net funded accounts by the end of 2019, 

12.5 million cumulative net funded accounts by the end of 2020, and 22.7 million cumulative net 

funded accounts by the end of 2021. However, Respondents did not update their AML program 

sufficiently to keep up with this growth. 

59. For example, until mid-2021, in order to detect transactions that needed to be 

reported in SARs, Respondents relied on proprietary surveillance software and the rules that this 

software used to detect potentially suspicious transactions were not reasonably designed to achieve 

compliance with Respondents’ SAR-filing requirements because they generated a large number of 

false positives, artificially increasing the number of alerts to be reviewed.   

60. In addition, until mid-2021, Respondents’ AML personnel relied on a collection of 

spreadsheets and shared folders to track and manage investigations into suspicious activity. As a 

result, Respondents’ AML group’s investigations were often inefficient. 

61. Respondents also failed to assign appropriately experienced staff to handle their 

SAR-filing responsibilities. 

62. Beginning in the first half of 2020, as Respondents experienced a growing volume 

of transactions, Respondents experienced a corresponding surge in the number of transactions that 

were flagged for review as potential suspicious activity. Respondents’ AML group failed to 

promptly review all the transactions that were flagged as potentially suspicious. 

63. By the end of 2020, Respondents had accumulated a backlog of more than 10,000 

potentially suspicious transactions that had been flagged for review in order to make a SAR-filing 

determination but remained unresolved beyond the 45-day deadline in Respondents’ internal 

policies. At that point, Respondents were filing SARs an average of 198 days after initially 

flagging a transaction for investigation.  

64. Beginning in January 2021, Respondents made several improvements to their AML 

compliance functions. Respondents hired managers and other AML personnel with specialized 



 12 

experience in investigating such activity. Respondents updated their procedures, implemented 

additional training and guidance for personnel, implemented a new system for tracking and 

managing investigations, and implemented a new transaction surveillance system. 

65. By June 2021, Respondents were still filing SARs an average of 144 days after a 

potentially suspicious transaction had been flagged for review. By the end of 2021, Respondents 

were filing SARs an average of 125 days after a potentially suspicious transaction had been 

flagged for review. Respondents eliminated their backlog in or around June 2022. 

66. As a result of the conduct described above, from January 2020 through March 

2022, Respondents systematically failed to promptly initiate reviews of potentially suspicious 

transactions, to complete those reviews in a reasonable period of time, and to timely file SARs.  

Identity Theft Prevention 

Respondents Violated Regulation S-ID by Failing to have a Compliant Documented Identity 

Theft Prevention Program. 

 

67. Rule 201 of Regulation S-ID requires registered broker-dealers that offer “covered 

accounts” to develop and implement a written identity theft prevention program (“Program”) 

“designed to detect, prevent, and mitigate identity theft in connection with the opening of a 

covered account or any existing covered account.” 17 C.F.R. § 248.201(d)(1). The Program “must 

be appropriate to the size and complexity of the financial institution…and the nature and scope of 

its activities.” Id. Respondents offer and maintain “covered accounts.” The rule defines a “covered 

account” to include an account that a financial institution or creditor “offers or maintains, primarily 

for personal, family, or household purposes, that involves or is designed to permit multiple 

payments or transactions, such as a brokerage account with a broker-dealer.” 17 C.F.R. 

§ 248.201(b)(3)(i). 

68. A Program must include reasonable policies and procedures to: (i) identify relevant 

identity theft red flags for the covered accounts that the financial institution or creditor maintains, 

and incorporate them into the Program; (ii) detect the red flags that have been incorporated into the 

Program; (iii) respond appropriately to any red flags that are detected to prevent and mitigate 

identity theft; and (iv) ensure that the Program is updated periodically, to reflect changes in risks to 

customers and to the safety and soundness of the financial institution or creditor from identity theft. 

17 C.F.R. § 248.201(d)(2). 

69. Firms must identify identity theft red flags that are appropriate to the size and 

complexity of their business and to the nature and scope of their activities, such as the types of 

covered accounts they offer or maintain, methods they provide to open covered accounts, methods 

they provide to access covered accounts, and their previous experiences with identity theft. 17 

C.F.R. §§ 248.201(d)(1), (f); Appendix A to Subpart C of 17 C.F.R. Part 248. Appendix A to 

Regulation S-ID directs firms to incorporate relevant identity theft red flags from sources like past 

incidents of identity theft that the firm has experienced and methods of identity theft that the firm 

has identified. Appendix A also includes a non-comprehensive list of “illustrative examples” of 

identity theft red flags, which firms may consider incorporating into their Programs in addition to 

the sources described above. 



 13 

70. From at least April 2019 through June 2022, Respondents’ Program did not include 

reasonable written policies and procedures to identify relevant identity theft red flags or describe 

how such red flags were to be identified.  

71. In 2020 and 2021, Respondents experienced a significant escalation in account 

takeovers. However, Respondents did not update their Program during this period to include 

identity theft red flags that were tailored to these incidents. 

72. The identity theft red flags in Respondents’ Program consisted substantially of the 

illustrative examples in Appendix A to Regulation S-ID, and some of them had little relevance to 

Respondents’ business. For example, although Respondents did not accept checks or require 

customers to submit signature cards, one of the red flags listed in the Program was account 

information not matching “a signature card or recent check.”  

73. Respondents’ Program also did not incorporate policies or procedures to ensure that 

it was updated periodically. The Program provided that it should be updated on an annual basis, but 

it was reviewed only once between April 2019 and the end of 2021. That review identified multiple 

problems with the Program, but Respondents did not immediately undertake the corrective actions 

outlined. 

Unauthorized Access to Respondents’ Systems 

Respondents Violated Regulation S-P by Failing to Implement Procedures to Prevent 

Unauthorized Access to Robinhood Systems 

 

74. On June 14, 2021, an unauthorized third party fraudulently persuaded a Robinhood 

employee to download remote access software onto a Robinhood computer and give the actor 

control of the computer. After the session was terminated, Respondents’ security team investigated 

and found no evidence that the unauthorized third party had accessed any sensitive information 

pertaining to Respondents or their customers.  

75. Respondents’ security team subsequently determined that Respondents should 

implement a system for detecting and blocking the installation of unapproved remote access 

software on company computers. On or about June 28, 2021, when the team created its official 

incident report, it listed “Prevent & Detect remote desktop tooling” as a corrective action to be 

undertaken. However, while Respondents blocked the known digital signature of the remote 

desktop tool used in the incident, among other actions, Respondents did not block all unapproved 

remote access software on Robinhood computers until after November 3, 2021. 

76. On November 3, 2021, another unauthorized third party perpetrated a similar attack 

on a different Robinhood employee. The third party called the employee from a spoofed 

Robinhood number and, posing as a Robinhood IT employee, persuaded the employee to 

download a different version of the same remote access software that had been used in the June 14 

attack. After downloading the software, the employee gave the unauthorized third party, whom the 

Robinhood employee believed to be a Robinhood IT employee, remote access to her computer for 

approximately four hours.  



 14 

77. After gaining access to the employee’s computer, the unauthorized party accessed 

Respondents’ confidential front-end systems. The unauthorized party obtained a list of email 

addresses for approximately five million people, and full names for a different group of 

approximately two million people. For a more limited number of people—approximately 310 in 

total—additional personal information, including name, date of birth, and zip code, was exposed, 

with a subset of approximately 10 customers having more extensive account details revealed. 

78. The Safeguards Rule, Rule 30(a) of Regulation S-P, 17 C.F.R. § 248.30, requires 

covered entities, including broker-dealers registered with the Commission, to adopt written policies 

and procedures that address administrative, technical, and physical safeguards for the protection of 

customer records and information. Those policies and procedures must be reasonably designed to: 

(i) ensure the security and confidentiality of customer records and information; (ii) protect against 

any anticipated threats or hazards to the security or integrity of customer records and information; 

and (iii) protect against unauthorized access to or use of customer records or information that could 

result in substantial harm or inconvenience to any customer. Rule 30(a) of Regulation S-P, 17 

C.F.R. § 248.30. 

79. Respondents’ policies and procedures were not reasonably designed to meet the 

requirements of the Safeguards Rule of Regulation S-P. Specifically, Respondents did not 

implement appropriate written policies and procedures reasonably designed to prevent 

unauthorized individuals from gaining access to certain of Respondents’ systems with confidential 

customer information by remotely controlling employees’ computers. By June 2021 at the latest, 

Respondents understood that malicious actors could potentially access confidential systems 

containing customer records and information via installations of unapproved remote access 

software on computers used by Respondents’ personnel. Nonetheless, in November 2021, an 

unauthorized third party used remote access software to gain access to customer records and 

information, which could result in substantial harm or inconvenience to Respondents’ customers. 

Recordkeeping Requirements Under the Exchange Act 

Respondents Failed to Preserve Communications and Corporate Records as Required by 

Exchange Act Section 17(a)(1) and Rules 17a-4(b)(4) and 17a-4(f) 

 

A. Off-Channel Communications Failures 

 

80. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 

requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 

records as necessary or appropriate in the public interest, for the protection of investors or 

otherwise in furtherance of the purposes of the Exchange Act. 

81. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 

authority. This rule specifies the manner and length of time that the records made in accordance 

with other Commission rules, and certain other records made by broker-dealers, must be 

maintained and produced promptly to Commission representatives. The rules adopted under 

Section 17(a)(1) of the Exchange Act, including Rule 17a-4(b)(4), require that broker-dealers 

preserve, for at least three years, the first two years in an easily accessible place, originals of all 



 15 

communications received and copies of all communications sent relating to the broker-dealer 

business as such.  

82. The Commission previously has stated that these and other recordkeeping 

requirements “are an integral part of the investor protection function of the Commission, and other 

securities regulators, in that the preserved records are the primary means of monitoring compliance 

with applicable securities laws, including antifraud provisions and financial responsibility 

standards.” Commission Guidance to Broker-Dealers on the Use of Electronic Storage Media 

under the Electronic Signatures in Global and National Commerce Act of 2000 with Respect to 

Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 

1. Respondents’ Policies and Procedures 

83. Respondents maintained certain policies and procedures designed to ensure the 

retention of business-related records, including electronic communications, in compliance with the 

relevant recordkeeping provisions.  

84. Respondents’ employees were advised that electronic business communications 

should only be accessed and transmitted through firm-sponsored systems, such as e-mail and a 

firm-approved instant messaging application. The use of unapproved electronic communications 

methods was not permitted, and employees were advised, including through the Respondents’ 

training, that they should not use personal email, chats, or text messaging applications for business 

purposes.  

85. Messages sent through approved communications methods were monitored, subject 

to review, and, when appropriate, archived. Messages sent through unapproved communications 

methods, such as WhatsApp, text messages, and other unapproved applications were generally not 

monitored, subject to review, or archived. 

86. Respondents’ policies were designed to address supervisors’ supervision of 

employees’ training in Respondents’ communications policies and adherence to Respondents’ 

books and recordkeeping requirements. Supervisory policies notified employees that electronic 

communications were subject to surveillance by Respondents.    

87. Respondents, however, failed to implement a sufficient system reasonably expected 

to determine whether all employees, including supervisors, were following Respondents’ policies 

and procedures. While permitting employees to use approved communications methods, including 

on personal phones, for business communications, Respondents failed to implement sufficient 

methods to reasonably determine that their policies were being followed.  

2. Respondents’ Recordkeeping Failures Across Their Brokerage 

Business 

88. Respondents cooperated with the investigation conducted by the Commission’s 

staff by voluntarily providing information about the communications of senior and other broker-

dealer personnel. The Commission staff also reviewed certain text messages that Respondents had 

collected from various employees’ phones. 



 16 

89. The information provided by Respondents showed off-channel communications at 

various seniority levels within Respondents. Some of these personnel sent and received numerous 

off-channel communications involving other Respondents’ personnel and other participants in the 

securities industry.   

90. For example, during the relevant period, a senior Robinhood Securities officer 

exchanged numerous off-channel business-related messages with colleagues and other participants 

in the financial markets. In addition, during the relevant period, a senior Robinhood Financial 

officer exchanged numerous off-channel business-related messages with colleagues and other 

participants in the financial markets. These messages related to Respondents’ broker-dealer 

businesses. 

3. Respondents’ Failure to Preserve Required Records Potentially 

Impacted Commission Matters 

91. Between May 2019 and December 2022, Respondents received and responded to 

Commission subpoenas for documents and records requests in Commission investigations. By 

failing to maintain and preserve required records relating to their broker-dealer businesses, 

Respondents may have deprived the Commission of responsive communications in various 

investigations. 

B. Non-Compliant Retention of Brokerage Data Repositories 

92. Exchange Act Rules 17a-3 and 17a-4 require broker-dealers to make and retain 

books and records related to the operation of their business. These records include trading blotters, 

trade confirmations, records of customer statements, and other information central to the operation 

of a broker-dealer. Exchange Act Rule 17a-4(f) provides that if records required to be maintained 

and preserved subject to Rules 17a-3 and 17a-4 are maintained by means of “electronic storage 

media,” such electronic storage media must preserve the records exclusively in a non-rewritable 

and non-erasable format during defined record retention periods. Broker-dealers often comply with 

this requirement by establishing “Write Once Read Many” (or “WORM”) protocols for record 

retention.3 WORM-compliant preservation of data ensures that brokerage data are stored in an 

immutable, auditable format.  

93. Prior to December 2020, Respondents backed up certain operational data using 

WORM-compliant databases. However, in 2020, Respondents made changes to their operational 

databases and, as a result, the WORM backup no longer captured all of this data. Thereafter, 

certain operational databases including Respondents’ (i) systems responsible for security order 

placement, accounting, and position tracking; (ii) system handling all cash movements; and (iii) 

database holding all customer and account information may not have been stored in a compliant 

format. From December 2020 through December 2023, Respondents created WORM-compliant 

                                                 
3  In October 2022, the Commission adopted amendments to Rule 17a-4 that added the use 

of an audit trail as an alternative to the WORM requirement. During the Relevant Period, 

Respondents did not attempt to implement a system to comply with the audit-trail alternative in 

Rule 17a-4. 



 17 

snapshots of these operational databases but retained those snapshots for retention periods that 

were insufficient to comply with Rule 17a-4. 

94. In addition, for certain other data that Respondents generated, including customer 

statements, trade confirmations, and blue sheet reports, Respondents failed to maintain all of the 

data in a manner that preserves all modifications to and deletions of any record in a non-rewritable 

and non-erasable format for the required record retention periods until December 2023. Although 

Respondents used a cloud-based data storage service for these records that was configured in a 

WORM-compliant manner, the retention period was not properly set to comply with the 

recordkeeping requirements until December 2023.  

C. Customer Email Communications and Account Notifications 

 

95. In addition to failing to properly preserve off-channel communications, from March 

2020 through March 2021, Respondents also failed to preserve certain email communications and 

account notifications that had been automatically generated and sent to customers based on 

templates (“Template Communications”).   

96. Respondents used a third-party software vendor to send Template Communications 

to their customers. In order to preserve these communications as required by Rule 17a-4(b)(4), 

Respondents would simultaneously send them to another third-party vendor to archive them. 

97. In October 2020, Respondents notified the archiving vendor that certain Template 

Communications in March 2020 and August 2020 were not available in the archive. The archiving 

vendor investigated the matter and, in December 2020, notified Respondents that, on certain dates, 

the total number of Template Communications that Respondents had sent exceeded the ingestion 

limit for the archive. As a result, certain Template Communications had not been retained and 

could no longer be retrieved for archiving.  

98. This issue occurred in March 2020, August 2020, September 2020, October 2020, 

January 2021, February 2021, and March 2021. Respondents estimate that, as a result of this 

problem, approximately 1.6 billion Template Communications were not preserved. 

Respondents’ Cooperation and Remedial Efforts 

99. In determining to accept the Offer, the Commission considered Respondents’ 

cooperation with the staff’s investigation and remedial acts undertaken by Respondents as set forth 

below. 

100. To remediate its failures related to EBS submissions, Robinhood Securities 

corrected the coding issues that caused the errors, updated its EBS validation and review processes, 

and revised its written supervisory procedures. Robinhood Securities is in the process of 

resubmitting corrected EBS to the Commission. 

101. To remediate their failures related to their Identity Theft Prevention Program, 

Respondents have implemented and documented a new Program with red flags tailored to 



 18 

Respondents’ business and policies and procedures that provide for the Program to be updated 

periodically. 

102. To remediate their failures related to unauthorized remote access of their systems, 

Respondents blocked the installation and use of remote access software on Respondents’ devices to 

safeguard their systems from unauthorized remote access, implemented additional access controls 

for front-end systems containing customer information, and implemented updated trainings 

regarding social engineering.  

103. To remediate their failures to promptly initiate reviews of potentially suspicious 

transactions and complete those reviews in a reasonable period of time, Respondents retained a 

consultant to review their procedures, upgraded their technology, increased their headcount and 

budget, hired managers and other personnel with relevant experience to investigate suspicious 

activity, revised their procedures for timely investigating and reporting such activity, implemented 

additional trainings and guidance for Respondents’ personnel, implemented a new system for 

tracking and managing investigations, and implemented a new transaction surveillance system. 

104. To remediate their failures to preserve as required records and communications 

related to their businesses as broker-dealers, Respondents revised their policies and procedures for 

compliance with recordkeeping requirements, implemented technological improvements, increased 

training, and engaged a consultant to review their systems and procedures for compliance with 

broker-dealer recordkeeping requirements under the Exchange Act. 

 

Violations and Failure to Supervise 

 

105. As a result of the conduct described above, Robinhood Securities and/or Robinhood 

Financial willfully violated the following provisions of the federal securities laws: 

 

a. Robinhood Securities failed to furnish complete records to the Commission 

staff that were requested by the Commission in its EBS requests. Therefore, 

Robinhood Securities violated the recordkeeping and reporting 

requirements of Section 17(a)(1) of the Exchange Act and Rule 17a-4(j) 

thereunder by failing to furnish promptly true and complete EBS 

information as requested by Commission staff over a period of more than 

five years. In addition, Robinhood Securities willfully violated Exchange 

Act Rule 17a-25 by failing to submit electronically certain securities 

transaction information to the Commission through the EBS system in 

response to requests made by the Commission; 

 

b. Robinhood Securities violated Rule 200(g) of Reg SHO which requires a 

broker or dealer to mark sale orders in all equity securities as “long,” “short,” 

or “short exempt.” An order to sell may be marked “long” only if the seller is 

deemed to own the security being sold, and either the security to be delivered 

is in the physical possession or control of the broker or dealer, or it is 

reasonably expected that the security will be in the physical possession or 



 19 

control of the broker or dealer no later than the settlement of the transaction. 

Reg SHO Rule 200(g)(2) provides that a sale order shall be marked “short 

exempt” only if the provisions of Reg SHO Rule 201(c) or 201(d) are met; 

 

c. Robinhood Securities violated Rule 203(b)(1) of Reg SHO, which prohibits 

a broker or dealer from accepting a short sale order in an equity security 

from another person or effecting a short sale in an equity security for its 

own account unless the broker or dealer has “(i) [b]orrowed the security, or 

entered into a bona-fide arrangement to borrow the security; or (ii) 

[r]easonable grounds to believe that the security [could] be borrowed so 

that it can be delivered on the date delivery is due; and (iii) [d]ocumented 

compliance” with those requirements; 

 

d. Robinhood Securities violated Rule 204(a) of Reg SHO, which requires a 

participant of a registered clearing agency to deliver securities to a 

registered clearing agency for clearance and settlement on a long or short 

sale in any equity security by settlement date, or to close out a fail to deliver 

position resulting from a long or short sale transaction in that equity 

security within certain timeframes; 

 

e. Respondents violated Rule 30(a) of Regulation S-P (17 C.F.R. § 248.30(a)), 

which requires every broker-dealer registered with the Commission to adopt 

written policies and procedures that are reasonably designed to address 

administrative, technical, and physical safeguards for the protection of 

customer records and information; 

 

f. Respondents violated Rule 201 of Regulation S-ID (17 C.F.R. § 248.201), 

which requires registered broker-dealers that offer or maintain covered 

accounts to develop and implement a written Identity Theft Prevention 

Program that is designed to detect, prevent, and mitigate identity theft in 

connection with the opening of a covered account or any existing covered 

account; 

 

g. Respondents violated Section 17(a) of the Exchange Act and Exchange 

Act Rule 17a-8, which require broker-dealers to comply with the 

reporting, recordkeeping, and record retention requirements of Chapter X 

of Title 31 of the Code of Federal Regulations by failing to timely file 

SARs during the relevant period; 

 

h. Respondents violated Section 17(a) of the Exchange Act and Exchange 

Act Rule 17a-4(b)(4), which require a broker-dealer to preserve in a non-

erasable format for at least three years, the first two years in an easily 

accessible place, originals of all communications received and copies of all 

communications sent relating to their business as such; and 

 



 20 

i. Respondents violated Section 17(a) of the Exchange Act and Exchange 

Act Rule 17a-4, which require broker-dealers to preserve documents and 

data required to be made pursuant to Exchange Act Rule 17a-3. 

 

106. As a result of the conduct described above, Respondents failed reasonably to 

supervise their employees, with a view to preventing or detecting certain of their supervised 

persons’ aiding and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 

thereunder, within the meaning of Section 15(b)(4)(E). 

 

Undertakings 

 

A. Reg SHO Compliance 

 

Respondent Robinhood Securities has undertaken to do the following: 

 

107. Certification. Within seven (7) days of the entry of the Order, Robinhood Securities 

shall certify in writing that it has remediated the following deficiencies resulting in Robinhood 

Securities’ mismarking of sale transactions and violation of the locate requirement: 

a. Inability to calculate the firm’s net position at time of sale order such that 

Robinhood Securities could make accurate order-marking determinations. 

b. Mismarking Fractional Shares riskless principal orders “long” based on 

customer’s underlying position, without regard to the firm’s net position. 

c. Mismarking Fractional Shares riskless principal orders “short exempt” 

when Robinhood Securities did not meet all conditions of Rule 201(d)(6). 

d. Failing to fulfill the locate requirement for Fractional Trading and 

Recurring Orders principal short sale orders. 

 

B. Off-Channel Communications 

 

108. Prior to this action, Respondents enhanced their policies and procedures, and increased 

training concerning the use of approved communications methods, including on 

personal devices. In addition, Respondents have undertaken to: 

109. Internal Audit. Within one hundred eighty (180) days of the entry of this Order, 

Respondents shall require that their Internal Audit function initiate an audit, to be 

completed within three hundred sixty-five (365) days of the entry of this Order 

consisting of the following:  

a. A comprehensive review of Respondents’ supervisory, compliance, and other 

policies and procedures designed to ensure that Respondents’ electronic 

communications, including those found on personal electronic devices, 

including without limitation, cellular phones (“Personal Devices”), are21 

preserved in accordance with the requirements of the federal securities laws. 

This review should include, but not be limited to, a review of Respondents’ 

policies and procedures to ascertain if they provide for any significant 

technology and/or behavioral restrictions that help prevent the risk of the use of 

unapproved communications methods on Personal Devices in work conditions 

(e.g., traveling, site visits). 

b. A comprehensive review of training conducted by Respondents to ensure 

personnel are complying with the requirements regarding the preservation of 

electronic communications, including those found on Personal Devices, in 

accordance with the requirements of the federal securities laws, including by 

ensuring that Respondents’ personnel certify in writing on a quarterly basis that 

they are complying with preservation requirements.  

c. An assessment of the surveillance program measures implemented by 

Respondents to ensure compliance, on an ongoing basis, with the requirements 

found in the federal securities laws to preserve electronic communications, 

including those found on Personal Devices. 

d. An assessment of the technological solutions that Respondents have begun 

implementing to meet the record retention requirements of the federal securities 

laws, including an assessment of the likelihood that Respondents’ personnel will 

use the technological solutions going forward and a review of the measures 

employed by Respondents to track employee usage of new technological 

solutions.  

e. A comprehensive review of the framework adopted by Respondents to address 

instances of non-compliance by Respondents’ employees with their policies and 

procedures concerning the use of Personal Devices to communicate about 

Respondents’ business in the past. This review shall include a survey of how 

Respondents determined which employees failed to comply with their policies 

and procedures, the corrective action carried out, an evaluation of who violated 

policies and why, what penalties were imposed, and whether penalties were 

handed out consistently across business lines and seniority levels.   

 

110. Recordkeeping. Respondents shall preserve, for a period of not less than five (5) years 

from the end of the fiscal year last used, the first two (2) years in an easily accessible 

place, any record of compliance with these undertakings, including any materials 

supporting the certifications made pursuant to paragraph 111, below. 

111. Certification. Respondents shall certify, in writing, compliance with the undertakings 

set forth above in paragraphs 109-110. The certification shall identify the undertakings 

and provide written evidence of compliance in the form of a narrative. The 

Commission staff may make reasonable requests for further evidence of compliance, 

and Respondents agree to provide such evidence. The certification shall be submitted to 



 22 

Joseph Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and 

Exchange Commission, 100 Pearl Street, Suite 20-100, New York, NY 10004, or such 

other person as the Commission staff may request, with a copy to the Office of Chief 

Counsel of the Enforcement Division, no later than sixty (60) days from the date of 

completion of the undertakings. 

In determining whether to accept the Offers, the Commission has considered these 

undertakings. 

 

IV. 

 

In view of the foregoing, the Commission deems it appropriate and in the public interest 

to impose the sanctions agreed to in Respondents’ Offers. 

 

A. Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act it is hereby 

ORDERED that: 

 

a. Respondent Robinhood Securities cease and desist from committing or 

causing any violations and any future violations of Section 17(a)(1) of the 

Exchange Act and Rules 17a-4(j) and 17a-25 promulgated thereunder. 

 

b. Respondent Robinhood Securities cease and desist from committing or 

causing any violations and any future violations of Rules 200(g), 203(b)(1), 

and 204(a) of Reg SHO. 

 

 

c. Respondents cease and desist from committing or causing any violations and 

any future violations of Rule 30(a) of Regulation S-P (17 C.F.R. 

§ 248.30(a)). 

 

d. Respondents cease and desist from committing or causing any violations and 

any future violations of Rule 201 of Regulation S-ID (17 C.F.R. § 248.201). 

 

e. Respondents cease and desist from committing or causing any violations and 

any future violations of Section 17(a) of the Exchange Act and Rules 17a-4, 

17a-4(b)(4), and 17a-8 thereunder. 

 

B. Respondents are censured. 

 

C. Robinhood Financial shall, within 14 days of the entry of this Order, pay a 

civil money penalty in the amount of $11,500,000 to the Securities and Exchange 

Commission for transfer to the general fund of the United States Treasury, subject to 

Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall 

accrue pursuant to 31 U.S.C. § 3717.   

 

The penalty ordered against Robinhood Financial represents: 



 23 

 

(1) $6,500,000 for its violations of Exchange Act Section 17(a) and 

Exchange Act Rule 17a-8,  

(2) $4,000,000 for its violations of Exchange Act Section 17(a) and 

Exchange Act Rules 17a-4 and 17a-4(b)(4); and  

(3) $1,000,000 for its violations of Rule 30(a) of Regulation S-P (17 

C.F.R. § 248.30(a)) and Rule 201 of Regulation S-ID (17 C.F.R. 

§ 248.201). 

 

D. Robinhood Securities shall, within 14 days of the entry of this Order, pay a 

civil money penalty in the amount of $33,500,000 to the Securities and Exchange 

Commission for transfer to the general fund of the United States Treasury, subject to 

Exchange Act Section 21F(g)(3). If timely payment is not made, additional interest shall 

accrue pursuant to 31 U.S.C. § 3717.  

 

The penalty ordered against Robinhood Securities represents: 

 

(1) $7,000,000 for its violations of Section 17(a)(1) of the Exchange Act 

and Exchange Act Rules 17a-4(j) and 17a-25;  

(2) $15,000,000 for its violations of Rules 200(g), 203(b)(1), and 204(a) 

of Reg SHO. 

(3) $6,500,000 for its violations of Exchange Act Section 17(a) and 

Exchange Act Rule 17a-8,  

(4) $4,000,000 for its violations of Exchange Act Section 17(a) and Rules 

17a-4 and 17a-4(b)(4); and  

(5) $1,000,000 for its violations of Rule 30(a) of Regulation S-P (17 

C.F.R. § 248.30(a)) and Rule 201 of Regulation S-ID (17 C.F.R. 

§ 248.201). 

 

Payment must be made in one of the following ways: 

 

(1) Respondents may transmit payment electronically to the 

Commission, which will provide detailed ACH transfer/Fedwire 

instructions upon request; 

 

(2) Respondents may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or 

 

(3) Respondents may pay by certified check, bank cashier’s check, or 

United States postal money order, made payable to the Securities and 

Exchange Commission and hand-delivered or mailed to: 

 

Enterprise Services Center  

Accounts Receivable Branch  

http://www.sec.gov/about/offices/ofm.htm


 24 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard  

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Robinhood Financial and Robinhood Securities as Respondents in these proceedings, and the file 

number of these proceedings; a copy of the cover letter and check or money order must be sent to 

Joseph Sansone, Chief, Market Abuse Unit, Division of Enforcement, Securities and Exchange 

Commission, 100 Pearl Street, Suite 20-100, New York, NY 10004. 

 

E. Amounts ordered to be paid as civil money penalties pursuant to this Order 

shall be treated as penalties paid to the government for all purposes, including all tax 

purposes. To preserve the deterrent effect of the civil penalty, Respondents agree that in any 

Related Investor Action, they shall not argue that they are entitled to, nor shall they benefit 

by, offset or reduction of any award of compensatory damages by the amount of any part of 

Respondents’ payment of a civil penalty in this action (“Penalty Offset”). If the court in any 

Related Investor Action grants such a Penalty Offset, Respondents agree that they shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the 

Commission’s counsel in this action and pay the amount of the Penalty Offset to the 

Securities and Exchange Commission. Such a payment shall not be deemed an additional 

civil penalty and shall not be deemed to change the amount of the civil penalty imposed in 

this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 

damages action brought against Respondents by or on behalf of one or more investors based 

on substantially the same facts as alleged in the Order instituted by the Commission in this 

proceeding. 

 

By the Commission. 

 

Vanessa A. Countryman 

Secretary