Robinhood used “confetti animation, digital scratch tickets, free stock rewards and other game-like features to push customers to interact” with the trading firm’s app, according to the secretary of state’s office.
The app also employed push notifications and “most popular” lists to encourage frequent trades, the secretary of state’s office said.
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Galvin expressed particular concern over how Robinhood drew in young, inexperienced investors, and prompted them to take unnecessary trading risks.
The consent order also addresses issues uncovered through an additional investigation by the Securities Division into a 2021 data security breach that affected Massachusetts customers, the secretary of state’s office said.
In an attempt to block the administrative proceedings against it, Robinhood sued Galvin’s office, leading to protracted litigation culminating in a ruling by the state Supreme Judicial Court that backed Galvin’s application of the “fiduciary standard” to the trading firm.
Galvin’s efforts to extend the fiduciary standard, normally used for financial advisers, to broker-dealers drew an outcry from many corners of the financial services industry as well as broader business groups.
“While I’m happy that this case with Robinhood has finally been resolved, I’m most grateful that after being thoroughly tested in court, the Massachusetts Fiduciary Rule remains the law of the land,” Galvin said in a statement released Thursday.
“This rule allows my office to ensure that investors’ interests are being protected in this state, and I hope that other states follow suit,” he said.
While Robinhood ceased many of its gamification tactics after complaints were filed, the secretary of state’s office said the settlement ensures that for Massachusetts customers, the trading firm “will cease any future use of celebratory imagery tied to the frequency of trading … and features that mimic games of chance.”
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Lucas Moskowitz, Robinhood deputy general counsel, responded to the settlement in a statement saying the company long ago changed its practices.
“This settlement resolves historical matters dating back to 2021 that do not reflect Robinhood today,” he said. “We’ve invested heavily in strengthening how we supervise our technology and system controls, ensuring platform stability, and enhancing cybersecurity policies and practices.”
“We are pleased to put this matter behind us and move forward steadfast in our commitment to providing access to the markets for our Massachusetts customers,” Moskowitz said.
The company also said it “rejected the premise that any part of our app, past or present, is ‘gamified.’”
“We take the safety and security of our customers’ information and accounts seriously,” the company said.
The basic dispute settled by the SJC involved what duty of care Robinhood owed its investors. Robinhood argued brokers paid by commission were only required to recommend investments that were deemed suitable for a particular customer.
But Galvin called for a higher standard, the one financial advisers who earn fees based on the amount of money they manage are held to: that they must put the financial interest of their customers first — above their own — when giving advice.
In addition to the gamification issues, the consent order also addresses what Galvin’s office called “serious cybersecurity issues” identified after a 2021 data security breach that affected more than 100,000 customers in Massachusetts.
According to the secretary of state’s office, an unauthorized third party was able to access Robinhood customer information due to a voice phishing scam. A Robinhood agent was convinced to download and run a third-party remote access software on a Robinhood-issued laptop, the secretary of state’s office said.
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Galvin faulted Robinhood for failing to block the installation of unauthorized software. It also faulted the trading firm for leaving the agent with “inadequate direction on how to report a critical data breach.”
Got a problem? Send your consumer issue to [email protected]. Follow him @spmurphyboston.
