The Robinhood app has turned investing into a game that is attracting people without the financial skills needed to succeed in trading stocks and has expanded its customer base without properly strengthening its ability to support its client, Secretary of State William Galvin contends in a complaint filed Wednesday.
Galvinâ€™s office wants Robinhood Financial LLC to hire an outside consultant to examine its marketing policies and procedures and to give close attention to its infrastructure.
In a statement released Wednesday, Galvin faulted Robinhoodâ€™s online marketing, which includes confetti showering the screen when a customer makes a trade, a technique he described as â€œgamification strategy.â€
â€œAs a broker-dealer, Robinhood has a duty to protect its customers and their money,â€ Galvin said in the statement. â€œTreating this like a game and luring young and inexperienced customers to make more and more trades is not only unethical, but also falls far short of the standards we require in Massachusetts.â€
The administrative complaint filed against Robinhood by Galvinâ€™s Securities Division is the first enforcement action of the Massachusetts Fiduciary Rule that Galvin began enforcing in September, the statement said.
Robinhood now has about 500,000 customers in Massachusetts with investments valued at $1.6 billion, according to Galvinâ€™s office. Citing company data, Galvin said the median age of Robinhood investors is 31 years old, and 68 percent have only limited or no investment history.
The company earns its income through trading by its customers, Galvinâ€™s office said. Customers should be screened for their investment history, something the company is not properly doing, according to Galvinâ€™s office.
The company keeps recruiting new customers, but canâ€™t handle the customer base it already has, Galvin said. Twice this year during crucial times on Wall Street, the app went dark, and customers could not perform any trades, the statement said. The app was inoperable for two days in March and one day a week later, and had a total of 70 outages of varying lengths through November, Galvinâ€™s office said.
â€œDespite its inability to maintain an adequate infrastructure, Robinhood continues to invite more and more customers to open accounts, and once these accounts are open, encourages customers to use the platform constantly,â€ the complaint states.
This is a developing story and will be updated.