Popular crypto friendly app developers Robinhood, have found their self centre stage of a civil fraud investigation.
This is mainly because the firm did not disclose to clients that it sold their buys and orders to high-speed trading firms.
These firms paid Robinhood to execute trades from Robinhood’s customers, who are typically layman day traders, not high-rollers.
Reportedly, the crypto-friendly app developers are in to pay over $10 million as fine to the Securities and Exchange Commission investigation.
Robinhood said that they try to maintain a constructive relationship with regulators’ policies and comply with them.
“We strive to maintain constructive relationships with our regulators and to cooperate fully with them. We do not discuss or comment on our communications with our regulators, a Robinhood spokesperson said.
Robinhood earns large from alleged fraud
Previously, other reports claim that Robinhood earned 1.7 cent for every share traded between April and June by these high-speed trading firms.
The firms being market makers they earn by charging a spread on each trade, just how casinos take their cut on sports betting.
Why sell these orders to high-speed when you Robinhood could execute the sales themselves? It is believed that selling them to a speed trader is a way of using computer algorithms to squeeze money out of ignorant investors.
Other arguments explain that the firm could get a better wholesale price and actually save money.
Alongside stock trading, the app also enables crypto trading like Bitcoin, Ethereum among others.
Amidst the COVID-19 pandemic, the firm has made quite a lot. It announced last month that it was valued at $11.2 billion; the month before, it was valued at $8.6 billion.
The SEC declined to comment regarding the probe.
However, the millennial-favored app, which offers commission-free trades, saw a historic 3 million new accounts in the first four months of 2020.