Robinhood Markets disclosed on Tuesday that it received inquiries from the Securities and Exchange Commission’s Division of Examinations and self-regulatory body FINRA, asking if the company’s employees traded the so-called meme stocks like GameStop and AMC Entertainment Holdings ahead of their trading restriction on January 28.
“These matters include inquiries related to whether any employee trading in these securities may have occurred in advance of the public announcement,” the stockbroker stated in an SEC filing dated July 27.
The commission-free platform was in the center of late January’s meme stock mania that ended up creating a short squeeze in the market. But, Robinhood restricted trading with several meme stocks at the peak of the market demand due to a shortage in margin collateral.
Additionally, FINRA requested documents and information related to the staff registration status of Robinhood, including two of its top executives: Chief Executive Officer, Vladimir Tenev and Chief Creative Officer, Baiju Bhatt. Both of them are not registered with the industry regulator.
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FINRA is ramping up its staff compliance efforts after Senator Elizabeth Warren started to press the regulator last February for registration details on the executives of broker-dealers. Also, a subsequent letter from the regulator confirmed that the ‘management of the member’s investment banking or securities business’ needs to be registered with it.
“Robinhood is evaluating this matter and intends to cooperate with the investigation,” the company filing added.
IPO Is Knocking
Robinhood Markets is facing these regulatory headwinds just ahead of its much anticipated initial public offering (IPO). A previous regulatory filing disclosed that the broker is seeking a market valuation of up to $35 billion with the public listing.
Apart from the latest inquiries, the American broker was slapped with heavy fines by multiple US regulators. FINRA recently ordered Robinhood to pay $70 million for supervisory failures. This was in addition to another $65 million in a penalty imposed by the SEC at an earlier time.