Join Amazon Prime for exclusive deals, fast shipping, and endless entertainment! Sign up now!
Stock trading app Robinhood is once again in trouble as the Securities and Exchange Commission turns their attention to an investigation into the company. The app is accused of engaging in practices which lead to the “gamification” of trading and abuse social media to the detriment of users. Robinhood is already controversial due to involvement in the GameStop trading frenzy and subsequent anger over the involvement of the company.
Robinhood targeted by the SEC
GameStop shares soared early in 2021 when swarms of retail investors began to use Robinhood and similar apps to make small investments in the company.
GameStop had been extensively shorted by large hedge funds, who had anticipated a continued decline in the value of the ailing company.
Instead, retail investors caused the value of the stock to skyrocket, creating havoc on Wall Street and among allied Democrats in Washington.
Robinhood responded to the panic by temporarily halting trading for GameStop and several other stocks, leading to an enormous backlash and accusations of foul play.
Robinhood has thus been under attack from both small retail investors and higher ups at the SEC, who have focused on the app as a cause for much of the market chaos.
Legislators and the public alike have called for investigations into Robinhood for their halt on trading in GameStop and other stocks.
An embattled trading app
The SEC, however, was already looking into potential illegalities from the company, which are once more being brought up by the current investigation.
Robinhood is accused of using aggressive advertising tactics and strategies to convince inexperienced investors to continually make more trades through the app.
The app rewards users for making high numbers of trades, something which the SEC claims is bad for the average investor, who will lose money by doing so.
The company claims that these incentives for making trades are only intended to encourage new investors to approach the stock market, fulfilling their mission of “democratizing” markets.
Robinhood, however, is still a money making operation, something which the company might prefer that users forget about. The app sells trading data to make a profit as it charges no fees for the trades themselves.
With pressure from multiple sides, Robinhood is clearly in a difficult spot. The company will certainly face a difficult situation in attempting to appease both the public and the SEC.
