The corporate’s shareholders, nonetheless, caught with it. Inside per week, it raised two rounds of emergency funding totaling $4.4 billion to satisfy lending necessities for inventory trades and to proceed making trades. That funding resulted in Robinhood’s outsize loss within the first three months of the yr.
Robinhood attracted scrutiny from regulators lengthy earlier than the GameStop frenzy drew the nationwide highlight. In 2018, it introduced that it might supply checking and financial savings accounts, claiming it was already backed by the Securities Investor Safety Company, a shopper safety group that oversees brokerages. After the group mentioned it didn’t insure checking and financial savings accounts, Robinhood backtracked and began the service a yr later.
Final yr, Robinhood was fined $65 million by the Securities and Change Fee over costs that it misled prospects about the way it makes cash. And in latest months, Massachusetts has escalated a struggle towards the app, shifting to revoke its license within the state, echoing different complaints that its app entices inexperienced traders to make dangerous bets.
The corporate additionally skilled outages at key moments, together with in March final yr, when the pandemic hit and shares went right into a free fall.
In its prospectus, Robinhood outlined regulatory scrutiny as a danger issue. It mentioned it anticipated to be topic to investigations, actions and settlements sooner or later “given the extremely regulated nature of the industries during which we function.”
Robinhood additionally highlighted class-action lawsuits associated to outages, securities fraud, hacking and the buying and selling halt this yr. The corporate settled a lawsuit by the household of Alex Kearns, a buyer who died by suicide final yr after making dangerous trades on Robinhood’s app.
“It is a firm that’s flying superfast in a very regulated setting,” Mr. Haslett mentioned.
One other danger, Robinhood mentioned, was a decline within the demand for Dogecoin, a joke cryptocurrency primarily based on a meme a few Shiba Inu canine. One-third of the income from cryptocurrency buying and selling within the first three months of the yr got here from Dogecoin, the corporate mentioned.