Robinhood files to go public

Robinhood, a day after incurring a record-breaking fine from Wall Street’s industry regulator, filed paperwork for its hotly anticipated initial public offering.

The IPO puts the stock trading app in a unique position: It plans to take advantage of its own public trading to sell stock to its customers. The company will set aside as much as 35% of its Class A share for individual investors on its own platform — a much larger allocation for retail investors than in a typical IPO. The company said it manages more than $80 billion for some 18 million users on its platform, more than half of which are first-time brokerage accounts.

Robinhood revealed Thursday that it is a rapidly growing business that managed to turn a profit last year. The company grew sales to $958.8 million last year, up 245% from the prior year. Robinhood turned a $7.5 million profit last year, a significant improvement from a $106.6 million loss in 2019. It’s unclear whether Robinhood will turn a profit this year after taking a $1.5 billion writedown last quarter on convertible notes and warrant liabilities.

The company also outlined several risk factors, including increasingly regulatory scrutiny and technology hurdles, particularly after the suicide of a young trader and system-wide meltdowns during the meme stock bonanza earlier this year.

The IPO plan follows a series of regulatory headaches for the free-trading app. On Wednesday, Robinhood was ordered to pay about $70 million for “systemic supervisory failures” and hurting investors by giving them “false or misleading information.” That’s the largest penalty ever imposed by Wall Street’s self-regulating body, the Financial Industrial Regulatory Authority, or FINRA.

FINRA’s sanctions on Robinhood focus on large-scale system outages that hit the platform in March 2020. The company paid customers back for some missed sales, and the ordeal cost it $3.6 million, Robinhood disclosed in its filing

FINRA’s penalties were also focused on options trading procedures at the heart of a lawsuit filed by the family of a 20-year-old Robinhood trader, Alexander Kearns, who died by suicide last year. Kearns died after he saw a negative balance of $730,000 in his trading account that he mistakenly believed he owed.

In the SEC filing Thursday, Robinhood revealed it reached a settlement out of court with the Kearns family, which had accused the company of “wrongful death, negligent infliction of emotional distress and unfair business practices” and sought damages.

Kearns’ death put intense scrutiny on Robinhood’s options-trading feature — a type of investing that can carry a huge amount of risk, especially for novice investors.

Robinhood also came under fire for its role in the GameStop (GME) saga in January. As a Reddit-fueled frenzy drove up the price of stocks including GameStop and AMC, Robinhood and other online brokerages said they were forced to suspend purchases. The move prompted a huge backlash among Robinhood users, and the company’s CEO, Vlad Tenev, was hauled before Congress for questioning on the matter. Tenev blamed the controversial restrictions on a demand from its clearinghouse to put up as much as $3 billion due to the market volatility.



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