Robinhood as controversial as ever as it makes market debut
Shares of Robinhood — the brokerage app popular among millennials for its commission-free trading — got off to a wobbly start Thursday, its first day as a public company.
Trading under the ticker HOOD, the online brokerage shifted between gains and losses around its opening price of $38 a share. It ended the day down $3.18, or 8.4%, at $34.82 a share.
Before the company's market debut on the Nasdaq, Robinhood priced shares at the low end of a $38-to-$42 range, selling 52.4 million shares and raising nearly $2 billion through an initial public offering. The company took an atypical step in setting aside as much as 35% of the shares it offered for traders using its app. Those folks would normally have to wait until the stock's appearance on an exchange to purchase it.
Co-founders Vlad Tenev and Baiju Bhatt each sold about $50 million in stock through the IPO.
Robinhood estimates having 22.5 million funded accounts as of the second quarter, an increase of 151% from the same period last year. It tallied second-quarter revenue of $546 million to $574 million, up from $244 million in the year-ago period, according to its IPO prospectus. Still, Robinhood said it expects a net loss of as much as $537 million in the second quarter.
Regulatory hurdles ahead?
The stock market debut comes amid ongoing regulatory scrutiny and a string of controversies at Robinhood, including its starring role in this year's meme stock phenomenon.
Around for nearly eight years, the Robinhood app took off during the pandemic, with investors using it to buy shares of bankrupt companies like Hertz and gathering online to bid up shares of GameStop and AMC Entertainment.
While customers trade stocks and options on Robinhood's app nearly for free, the company generates revenue from fees from selling its users' stock orders to other Wall Street firms.
That includes Citadel Securities, majority-owned by Ken Griffin, founder of a large hedge fund called Citadel.
Critics contend the setup has brokers like Robinhood sending customer orders to the firms that pay the highest fees instead of those that complete orders for the best price.
Massachusetts Democrat Elizabeth Warren is among those calling for new rules for companies like Robinhood, with the senator arguing regulation is needed to ensure disclosure of how data on customers and trades is used.
Securities and Exchange Commission Chair Gary Gensler in May blasted the "gamification" of stock trading on user-friendly apps and pointed to potential conflicts of interest for market makers that profit off of high-volume trades, signaling possible new rules for Robinhood and Citadel Securities, among others.
New probes in the works
Robinhood on Monday disclosed new regulatory probes by the Financial Industry Regulatory Authority, or FINRA, as well as the SEC. FINRA is investigating the "non-registration status" of CEO Tenev and Bhatt, now chief creative officer.
"Robinhood is evaluating this matter and intends to cooperate with the investigation," the company said in the filing.
The company also has received inquiries from FINRA and the SEC about employee trades involving GameStop, AMC and other so-called meme stocks, it disclosed in the filing.
Robinhood faced a firestorm in January when its platform temporarily blocked users from purchasing shares of GameStop and other high-volume stocks. The app raked in at least $110 million during the rally of once-sleepy publicly listed companies that were dubbed meme stocks because they had generated unusual market buzz via social media networks like Reddit.
In December, the SEC brought charges against Robinhood for not properly disclosing how it makes money and for not always getting its clients the best execution prices for their stock trades. Robinhood paid $65 million to settle the charges, but didn't officially admit that it had done anything wrong.
More recently, FINRA in late June ordered Robinhood to pay nearly $70 million for misleading customers and causing them millions in losses. FINRA said the largest fine ever levied by the agency "reflects the scope and seriousness of Robinhood's violations."
One of those customers was 20-year-old Alex Kearns, who died by suicide last year after he mistakenly believed he'd lost nearly $750,000 in a risky bet on Robinhood. When his account flashed red, Kearns tried to email the company's customer service three times to ask if his negative balance was accurate. He received no response and took his own life. Robinhood settled a wrongful-death suit with Kearn's family on undisclosed terms, the company said in its IPO filing.
Robinhood told CBS News in late June it "has invested heavily in improving platform stability, enhancing our educational resources, and building out our customer support and legal and compliance teams. We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all."