Robinhood has declined a lawsuit from the Securities and Exchange Commission by agreeing to pay $ 65 million.

The trading app, which takes its name from the English folk hero who stole from the rich to give to the poor, made a name for itself by making investing easier for newbies. By Thursday Announcement from the SEC, Robinhood cheated on its users between 2015 and 2018 about where the money came from, stating:

Material misrepresentations and omissions by Robinhood with respect to its sources of revenue, particularly the receipt of payments from certain major trading firms, also known as electronic market makers, for forwarding Robinhood customer orders to them, and with regard to certain performance quality statements that Robinhood has reached for its customers’ orders. “

The SEC’s underlying Exchange Act does not prohibit broker-dealers like Robinhood from being paid for sending orders through those major trading firms, but it does require those broker-dealers to work to get their clients the best deal.

Indeed, the SEC says Robinhood hid the worst deal customers got. The company’s initial pitch as a commission-free platform allowed the company to hide similar costs in the form of higher execution prices for user orders:

“One of Robinhood’s main selling points was that it did not charge its clients trading commissions. In reality, however, ‘commission-free’ trading at Robinhood brought a catch: Robinhood’s clients received inferior execution prices compared to what they would have received from Robinhood’s Competitors. “

In its early years, Robinhood’s overwhelming reliance on order flow payments – which the SEC claims amounted to up to 80% of the company’s revenue in 2015 – seems to have led the company to overlook this duty to customers.

Fortunately for Robinhood, 2020 has been extremely lucrative for such fintech platforms. With more people at home and the stock market rising above other ways to make money, consumer-friendly apps retail has grown. Just the company saw funding of $ 660 million round in September.

At the same time, today’s settlement doesn’t seem to be the end of Robinhood’s legal troubles. Just yesterday, reports emerged that Massachusetts securities regulators wanted to file a lawsuit against Robinhood for exposing inexperienced investors to “unnecessary trading risks.”

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