Robinhood Discloses New Regulatory Probe One Day Before IPO

During the week of a highly anticipated IPO expected to value the company in the $35 billion range, Robinhood Markets Inc. (NASDAQ: HOOD) is facing yet another in a long string of controversies surrounding its trading app.

What Happened? On Wednesday, Robinhood reported it has received inquiries from the Financial Industry Regulatory Authority and the Securities & Exchange Commission related to employee trading of so-called meme stocks and the FINRA registration of CEO Vlad Tenev.

Related Link: Why Robinhood IPO Investors Are Facing 'Alarming Risk'

In a new filing Robinhood said the primary focus of the probes is whether Robinhood employees traded stocks like GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC) prior to controversial temporary buying restrictions Robinhood placed on the stocks Jan. 28, 2021.

Regulators are also investigating the fact CEO Vlad Tenev is not registered with FINRA, which typically requires the CEOs of registered broker dealers to be licensed and trained in market rules and risks.

Why It’s Important: In June, Robinhood was fined $70 million by FINRA for “systemic supervisory failures” that led to outages of the platform during the extremely volatile periods of March 2020.

The record fine also included allegations of misleading communication and trading practices by Robinhood.

Robinhood is also facing more than 90 lawsuits related to its trading halts of GameStop and other equities back in February.

Earlier this week, David Trainer, CEO of New Constructs, said Robinhood shares will be incredibly overpriced if its IPO values the company anywhere close to the $35 billion analysts are anticipating.

“We think the stock is worth no more than $9 billion and that Robinhood will likely not be able to continue the robust growth it saw in 2020 due to looming regulatory risk, increasing competition, and an undifferentiated service,” he said.

Benzinga’s Take: Robinhood may also be facing the wrath of all the retail stock traders it enraged with its GameStop an AMC buying restrictions earlier this year.

The company is reportedly allocating up to 35% of its IPO shares to its own retail customers, which has the potential to trigger some extreme downside volatility if they all decide to sell or short the stock at once.