A U.S. federal judge has ordered Robinhood Financial LLC to pay $9 million in a lawsuit over its referral program.
The case involved a broker’s “refer-a-friend” promotion that allowed unwanted text messages to be sent in Washington. The total payment will be $9 million, including $2.2 million in attorney fees.
“Robinhood has agreed to pay $9,000,000 to establish a non-reversionary Settlement Fund to benefit Settlement Class Members who filed claims. It is an excellent result for the approximately 827,327 consumers.”
Court filing
Judge Barbara Rothstein of the U.S. District Court for the Western District of Washington agreed with the plaintiff’s motion that the program violated state consumer protection laws.
The judge noted that she considered the terms of the settlement fair, reasonable, and appropriate due to the complexity, cost, and length of litigation, as well as the risks associated with establishing liability and damages.
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What’s wrong with Robinhood’s referral program?
The referral program motivates existing customers to recommend the product to their friends and family. For a successful recommendation, the client receives a reward, such as bonus points, a promotional code for a discount, a free product, a gift, or money.
Robinhood’s referral program allowed customers to create and send messages to their contacts from their phones, inviting them to join the Robinhood platform.
The lawsuit, filed in 2021, said the referral program violated the Washington Commercial Email Act and the Consumer Protection Act. Terrell Marshall Law Group and Berger Montague filed a complaint from all users who received Robinhood referral program messages and resided in Washington state from August 2017 to February 2024. However, the lawsuit did not include those who agreed to receive text messages from Robinhood’s referral program.
Wells notice
Robinhood received a Wells notice from the U.S. Securities and Exchange Commission (SEC). The department reportedly planned to sue the company for violating securities laws.
ROBINHOOD TANKS 5% AFTER SEC ISSUED WELLS NOTICE RELATED TO U.S. CRYPTO BUSINESS$HOOD pic.twitter.com/MglAwy9Pzx
— Radar🚨 (@RadarHits) May 6, 2024
Such notices alert companies to potential enforcement action while investigating the recipient company’s activities. Previously, they also came to the Coinbase platform, the decentralized exchange (DEX) Uniswap, or the non-profit organization Ethereum Foundation.
Robinhood Markets Director of Legal, Compliance, and Corporate Affairs Dan Gallagher said the company was disappointed that the agency decided to go to court. All assets traded on the platform are not securities, and the broker is ready to discuss this issue with the regulator.
“We strongly believe that the assets listed on our platform are not securities, and we look forward to engaging with the SEC to clarify just how weak any case against Robinhood Crypto would be on both the facts and the law.”
Dan Gallagher, Robinhood Markets Director of Legal, Compliance, and Corporate Affairs
The fact that the department had sent Robinhood a warning about a possible lawsuit filing became known in March 2023. In its annual report, the online broker said the claims made in December 2022 related to the listing of digital assets.
At the same time, in June 2023, the platform refused to support the cryptocurrencies Solana (SOL), Cardano (ADA), and Polygon (MATIC) after the regulator equated them to securities in lawsuits against the Binance and Coinbase exchanges. What the lawsuit against Robinhood is related to has yet to be reported. The company said the broker had previously received subpoenas and cooperated with the investigation.
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Robinhood continues to grow despite problems
Earlier in July, Bloomberg reported, citing sources, that Robinhood Markets Inc. is considering offering cryptocurrency futures in the U.S. and Europe in the coming months.
They noted that once the acquisition of Bitstamp Ltd. closes next year for $200 million, Robinhood hopes to use the cryptocurrency exchange’s licenses to offer perpetual futures on Bitcoin (BTC) and other tokens in Europe. The company also wants to launch CME-based futures for Bitcoin and Ethereum (ETH) in the U.S.
Additionally, Robinhood announced the acquisition of investment and AI research platform Pluto Capital Inc. As part of the deal, Pluto founder and CEO Jacob Sansbury joined the Robinhood team to accelerate the product roadmap and help integrate AI capabilities into the platform. Other details, such as the amount of the agreement, were not disclosed.
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