Robinhood Financial Hit With Class-Action Suit for Selling Stock Orders
(Bloomberg) - Robinhood Financial LLC was sued in a proposed class action lawsuit for allegedly failing to inform clients that they were selling their stock orders to trading companies and were effectively collecting commission fees on the back door.
The complaint filed in federal court in San Francisco on Wednesday follows the company's $ 65 million settlement with the US Securities and Exchange Commission on similar allegations.
While Robinhood advertises "commission-free" trading on its platform, it did not disclose that it relied largely on "pay for the flow of orders" and collected payments from market makers in exchange for executing trades under the lawsuit.
"The major trading companies / electronic market makers have in turn passed these costs on to Robinhood's clients on every trade through inferior execution quality - the price at which the requested market orders were executed," the complaint read.
Read More: Robinhood Pays $ 65M to Complete One Key Investigation, But Others Firm
Under the agreement with the SEC, Robinhood has agreed to have an outside consultant monitor compliance by ensuring that the rules are being followed that require companies to ensure best execution for business. Robinhood, which did not admit or deny the regulator's claims, said at the time that it is now completely transparent in its communications with clients about how it makes money.
Nora Chan, a spokeswoman for Robinhood, declined to comment.
The case is Lemon v Robinhood Financial LLC, 20-cv-09328, US District Court, Northern District of California (San Francisco).
(Updates with Robinhood decline comment)
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