However, the company’s shareholders stayed with them. Within a week, it raised two rounds of emergency funding totaling $ 4.4 billion to meet stock trading lending requirements and continue trading. This funding resulted in an oversized loss for Robinhood in the first three months of the year.
Robinhood drew regulatory scrutiny long before the GameStop frenzy caught the national spotlight. In 2018, it announced it would offer checking and savings accounts, claiming it was already backed by Securities Investor Protection Corporation, a consumer protection group that oversees brokerage. After the group said they didn’t insure checking and savings accounts, Robinhood backed out and started the service a year later.
Last year Robinhood was fined $ 65 million by the Securities and Exchange Commission for misleading clients about how she makes money. And in the past few months, Massachusetts has escalated a battle against the app, revoking its license in the state, and reiterating other complaints that its app is tempting inexperienced investors to gamble.
The company also saw defaults at key moments, including last March when the pandemic hit and stocks went into a free fall.
Robinhood described regulatory control as a risk factor in its prospectus. It assumes that there will be investigations, measures and comparisons in the future, “given the highly regulated nature of the industries in which we operate”.
Robinhood also highlighted class actions related to defaults, securities fraud, hacking, and the trading freeze earlier this year. The company has settled a family lawsuit of Alex Kearns, a customer who died of suicide last year after doing risky deals with the Robinhood app.
“This is a company that flies super fast in a really regulated environment,” said Haslett.
Another risk, Robinhood said, is a drop in demand for Dogecoin, a joke cryptocurrency based on a meme about a Shiba Inu dog. A third of the revenue from cryptocurrency trading in the first three months of the year came from Dogecoin, the company said.