Robinhood's crypto unit hit with $30m fine over security, anti-crime misses
(2022/08/02)
- Reference: 1659469368
- News link: https://www.theregister.co.uk/2022/08/02/robinhoods_crypto_penalty/
- Source link:
Updated Robinhood's cryptocurrency operations has been formally fined $30 million for violating New York's anti-money-laundering and cybersecurity regulations.
[1]According to the US state's Department of Financial Services on Monday, Robinhood Crypto didn't hire sufficient staff and didn't invest in other resources for its anti-money-laundering and cybersecurity compliance programs. A subsequent investigation found Robinhood's transaction monitoring system had "significant deficiencies," and it didn't sufficiently train its employees, the watchdog noted.
Despite these failings, the financial firm "improperly certified compliance" with New York's transaction monitoring and cybersecurity rules, according to the department.
[2]
Robinhood also, it is said, failed to comply with some consumer protection requirements by not maintaining a dedicated phone number on its website and violated some reporting requirements.
[3]
[4]
"As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the Department's anti-money laundering and cybersecurity regulations," New York's Superintendent of Financial Services Adrienne Harris said.
"All virtual currency companies licensed in New York State are subject to the same anti-money laundering, consumer protection, and cybersecurity regulations as traditional financial services companies," she added.
[5]
In addition to paying the $30 million penalty to end the matter and avoid further action, Robinhood Crypto also agreed to hire an independent consultant to evaluate its compliance with the state's regulations, according to a settlement
[7]Robinhood hit with record $70m bill by financial watchdog for outages, misleading investors
[8]Investment app Robinhood: Extortionist tricked our support desk and made off with customer information
[9]Lawsuit accusing Robinhood and Citadel Securities of colluding to stop GameStop shares from skyrocketing thrown out by judge
[10]Carnival Cruises torpedoed by US states, agrees to pay $6m after wave of cyberattacks
Speaking of crypto... Craig Wright, who says he invented Bitcoin, has been [11]awarded a derisory £1 in damages after he sued a blogger for libel in England. The internet writer, Peter McCormack, had said in tweets and an online video that Wright did not invent the cryptocurrency. The defamation trial ultimately shifted away from whether or not Wright was really Satoshi Nakamoto, the pseudonymous creator of Bitcoin, and onto assertions by Wright that he had been disinvited from conferences and had academic papers rejected as a result of McCormack's comments.
Mr Justice Chamberlain found that Wright had "advanced a deliberately false case" in insisting his appearances and submissions had been canceled or dropped, which is to say, the High Court judge didn't quite believe him from the evidence presented. As such, the judge didn't feel Wright deserved anything more than a single quid in damages; legal fees will be worked out later.
"We are pleased the settlement in principle reached last year and previously disclosed in our public filings is now final," Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement at Robinhood Markets, said in an emailed statement to The Register .
Crumpton is referring to a [12]filing with the US Securities and Exchange Commission from last year, in which Robinhood disclosed the multi-million-dollar fine before the company went public.
"We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers," Crumpton continued.
"We remain proud to offer a more accessible, lower-cost platform to buy and sell crypto and are excited to continue to grow our business in a responsible manner with new products and services that our customers want."
[13]
The $30 million fine comes a little more than a year after another watchdog hit Robinhood with a [14]$70 million bill for causing investors to lose millions of dollars due to misleading financial information and system outages.
In June 2021, the US Financial Industry Regulatory Authority ordered the biz to cough up $57 million in fines plus pay back $12.6 million to customers to cover their losses with interest. That year, Robinhood recorded $1.8 billion in revenues, up 89 percent in 2020, which it managed to turn into a $3.7 billion net loss. ®
Updated to add
Soon after this story was published, Robinhood CEO Vlad Tenev [15]announced he was cutting staff by 23 percent, or about 900 people.
"While employees from all functions will be impacted, the changes are particularly concentrated in our operations, marketing, and program management functions," he said.
The biz axed nine percent of its workforce earlier this year. "This did not go far enough," Tenev said.
"Since that time, we have seen additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash. This has further reduced customer trading activity and assets under custody."
And as such, with this downturn in transactions and holdings, fewer workers are needed than expected, hence today's layoffs.
Robinhood also announced its [16]second-quarter [PDF] financial results today. Revenue for the three months was down 44 percent year on year to $318 million, and up six percent sequentially. This turned into a net loss of $295 million, better than the year-ago's half-billion-dollar loss.
Get our [17]Tech Resources
[1] https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202208021
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
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[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[6] https://www.dfs.ny.gov/system/files/documents/2022/08/ea20220801_robinhood.pdf
[7] https://www.theregister.com/2021/07/01/robinhood_finra_fine/
[8] https://www.theregister.com/2021/11/09/robinhood_breach/
[9] https://www.theregister.com/2021/11/19/lawsuit_robinhood_citadel/
[10] https://www.theregister.com/2022/06/28/carnival-cybersecurity-fines/
[11] https://www.matrixlaw.co.uk/news/high-court-awards-craig-wright-1-in-libel-damages/
[12] https://www.sec.gov/Archives/edgar/data/0001783879/000162828021013986/robinhoods-1a1.htm
[13] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[14] https://www.theregister.com/2021/07/01/robinhood_finra_fine/
[15] https://blog.robinhood.com/news/2022/8/2/a-message-from-our-ceo-and-co-founder-vlad-tenev
[16] https://s28.q4cdn.com/948876185/files/doc_financials/2022/q2/Robinhood-Exhibit-99.1_6.30.22_final.pdf
[17] https://whitepapers.theregister.com/
[1]According to the US state's Department of Financial Services on Monday, Robinhood Crypto didn't hire sufficient staff and didn't invest in other resources for its anti-money-laundering and cybersecurity compliance programs. A subsequent investigation found Robinhood's transaction monitoring system had "significant deficiencies," and it didn't sufficiently train its employees, the watchdog noted.
Despite these failings, the financial firm "improperly certified compliance" with New York's transaction monitoring and cybersecurity rules, according to the department.
[2]
Robinhood also, it is said, failed to comply with some consumer protection requirements by not maintaining a dedicated phone number on its website and violated some reporting requirements.
[3]
[4]
"As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the Department's anti-money laundering and cybersecurity regulations," New York's Superintendent of Financial Services Adrienne Harris said.
"All virtual currency companies licensed in New York State are subject to the same anti-money laundering, consumer protection, and cybersecurity regulations as traditional financial services companies," she added.
[5]
In addition to paying the $30 million penalty to end the matter and avoid further action, Robinhood Crypto also agreed to hire an independent consultant to evaluate its compliance with the state's regulations, according to a settlement
[6]PDF
publicized today.[7]Robinhood hit with record $70m bill by financial watchdog for outages, misleading investors
[8]Investment app Robinhood: Extortionist tricked our support desk and made off with customer information
[9]Lawsuit accusing Robinhood and Citadel Securities of colluding to stop GameStop shares from skyrocketing thrown out by judge
[10]Carnival Cruises torpedoed by US states, agrees to pay $6m after wave of cyberattacks
Speaking of crypto... Craig Wright, who says he invented Bitcoin, has been [11]awarded a derisory £1 in damages after he sued a blogger for libel in England. The internet writer, Peter McCormack, had said in tweets and an online video that Wright did not invent the cryptocurrency. The defamation trial ultimately shifted away from whether or not Wright was really Satoshi Nakamoto, the pseudonymous creator of Bitcoin, and onto assertions by Wright that he had been disinvited from conferences and had academic papers rejected as a result of McCormack's comments.
Mr Justice Chamberlain found that Wright had "advanced a deliberately false case" in insisting his appearances and submissions had been canceled or dropped, which is to say, the High Court judge didn't quite believe him from the evidence presented. As such, the judge didn't feel Wright deserved anything more than a single quid in damages; legal fees will be worked out later.
"We are pleased the settlement in principle reached last year and previously disclosed in our public filings is now final," Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement at Robinhood Markets, said in an emailed statement to The Register .
Crumpton is referring to a [12]filing with the US Securities and Exchange Commission from last year, in which Robinhood disclosed the multi-million-dollar fine before the company went public.
"We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers," Crumpton continued.
"We remain proud to offer a more accessible, lower-cost platform to buy and sell crypto and are excited to continue to grow our business in a responsible manner with new products and services that our customers want."
[13]
The $30 million fine comes a little more than a year after another watchdog hit Robinhood with a [14]$70 million bill for causing investors to lose millions of dollars due to misleading financial information and system outages.
In June 2021, the US Financial Industry Regulatory Authority ordered the biz to cough up $57 million in fines plus pay back $12.6 million to customers to cover their losses with interest. That year, Robinhood recorded $1.8 billion in revenues, up 89 percent in 2020, which it managed to turn into a $3.7 billion net loss. ®
Updated to add
Soon after this story was published, Robinhood CEO Vlad Tenev [15]announced he was cutting staff by 23 percent, or about 900 people.
"While employees from all functions will be impacted, the changes are particularly concentrated in our operations, marketing, and program management functions," he said.
The biz axed nine percent of its workforce earlier this year. "This did not go far enough," Tenev said.
"Since that time, we have seen additional deterioration of the macro environment, with inflation at 40-year highs accompanied by a broad crypto market crash. This has further reduced customer trading activity and assets under custody."
And as such, with this downturn in transactions and holdings, fewer workers are needed than expected, hence today's layoffs.
Robinhood also announced its [16]second-quarter [PDF] financial results today. Revenue for the three months was down 44 percent year on year to $318 million, and up six percent sequentially. This turned into a net loss of $295 million, better than the year-ago's half-billion-dollar loss.
Get our [17]Tech Resources
[1] https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202208021
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[6] https://www.dfs.ny.gov/system/files/documents/2022/08/ea20220801_robinhood.pdf
[7] https://www.theregister.com/2021/07/01/robinhood_finra_fine/
[8] https://www.theregister.com/2021/11/09/robinhood_breach/
[9] https://www.theregister.com/2021/11/19/lawsuit_robinhood_citadel/
[10] https://www.theregister.com/2022/06/28/carnival-cybersecurity-fines/
[11] https://www.matrixlaw.co.uk/news/high-court-awards-craig-wright-1-in-libel-damages/
[12] https://www.sec.gov/Archives/edgar/data/0001783879/000162828021013986/robinhoods-1a1.htm
[13] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_security/cso&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Yumelud0nRpOJYWTVgQRpAAAAEw&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[14] https://www.theregister.com/2021/07/01/robinhood_finra_fine/
[15] https://blog.robinhood.com/news/2022/8/2/a-message-from-our-ceo-and-co-founder-vlad-tenev
[16] https://s28.q4cdn.com/948876185/files/doc_financials/2022/q2/Robinhood-Exhibit-99.1_6.30.22_final.pdf
[17] https://whitepapers.theregister.com/
Weird
Anonymous Coward
This earns them something approaching a half decent slap on the wrist but their protection of stock shorters through artificial trading limits has still not been addressed. I suppose it's okay to rig the game if the profits end up in the pockets of people who make the 'right' decisions WRT financial support and political donations.
Toothless
I'm sure their wrists are stinging on that one. A rounding error compared to the tide of red ink their own stock has racked up since it's IPO succumbed to gravity. But hey, why not let the bad news trickle out in dribs and drabs like the shady things they have been doing with their customers stock trades. The company that enabled the GME meme has become the poster child of hate for the very Apes it created. The company that hung it's star on crypto just before the bottom fell out of the bucket. No surprise to see it's internal controls in such disarray, look at their choices for supported cryptocurrencies.
*Disclosure: I own tiny amounts of crypto and HOOD stock on Robinhood, mostly to have a seat in the bleachers when things go full Hindenburg. I don't expect to see any of it back, though technically the HOOD stock was free as I sold most of mine in the post IPO blip and used the profits to by some back after it tanked. Still, prince Vlad is free to prove me wrong by turning Robinhood from the Duplo blocks of stock trading into a platform that provides value to individual share holders. If that makes you hate me, don't worry, a decent chunk of that pittance is in Dogecoin, I'm already punishing myself.