Robinhood says US watchdogs probing staff meme stock trading ahead of IPO

The inquiries are the latest regulatory headwinds facing Robinhood as it heads towards its initial public offering this week.
The inquiries are the latest regulatory headwinds facing Robinhood as it heads towards its initial public offering this week.PHOTO: REUTERS

WASHINGTON (REUTERS) - Robinhood Markets disclosed on Tuesday (July 27) it has received inquiries from United States watchdogs asking whether employees traded GameStop and AMC Entertainment Holdings before the online broker publicly announced it was restricting trading in those and other meme stocks on Jan 28.

The company is also being probed over whether it complied with staff registration rules, it said.

The newly disclosed inquiries from the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (Finra) are the latest regulatory headwinds facing the company as it heads towards its hotly anticipated initial public offering (IPO) this week.

Earlier this month, Robinhood revealed a swathe of government and regulatory investigations in its IPO filing, just a day after Finra hit the firm with a US$70 million (S$95 million) penalty for "systemic" failures, issuing "false and misleading" information and other controls failures.

Spokesmen for both Robinhood and Finra declined to comment. A spokesman for the SEC did not immediately respond to a request for comment.

In a new filing on Tuesday, Robinhood said it had received inquiries from the SEC's Division of Examinations and Finra related to employee trading in meme stocks during the week of Jan 25, before a spike in volatility led the company to restrict trading in those shares on Jan 28.

"These matters include inquiries related to whether any employee trading in these securities may have occurred in advance of the public announcement of the... trading restrictions," it said.

On Monday, Finra also sent an investigative request to Robinhood seeking documents related to its compliance with Finra's staff registration requirements, the company said.

That request sought information relating to chief executive Vladimir Tenev and co-founder Baiju Bhatt, who are not registered with Finra.

In February, Senator Elizabeth Warren pressed the regulator for details about its registration requirements for executives of broker-dealers.

The self-regulatory agency requires holding company executives to register if they are involved in the "management of the member's investment banking or securities business", according to a Finra letter sent to lawmakers in February.

"Robinhood is evaluating this matter and intends to cooperate with the investigation," the company said in the filing.