As Robinhood prepares to IPO, regulators investigate employee meme stock trading

That’s according to an amended IPO registration document Robinhood filed with the Securities Exchange Commission on July 27, in which the company discloses that both the SEC and the Financial Industry Regulatory Authority, the top watchdogs for the brokerage industry, requested documentation and information from the company. 

The new inquiries seem to be fresh. FINRA’s “investigative request” over brokerage registration matters was received by Robinhood on July 26, according to the filing. “Robinhood is evaluating this matter and intends to cooperate with the investigation,” according to the document. 

A Robinhood spokesman and FINRA declined to comment, and the SEC didn’t respond to a request for comment. The new inquiries were first reported by Reuters. 

The fresh round of scrutiny of Robinhood comes ahead of the commission-free brokerage’s initial public offering, which is expected later this week. The company hosted an IPO Roadshow this weekend, outlining its business model and revealing it was weighing new products, including crypto wallets and retirement accounts.

As part of the process of being publicly listed on an exchange, private companies must disclose business metrics and potential risks, which includes disclosing regulatory inquiries and lawsuits. Robinhood’s initial IPO filing revealed the extent to which regulators had honed in on Robinhood when responding to the meme stock chaos from earlier this year — when retail investors flocked to buy shares of companies like GameStop and AMC.

The events in January had spawned inquiries from the U.S. Department of Justice, the SEC, the New York Attorney General’s Office as well as other state attorneys general offices and state securities regulators — and it had even sparked the U.S. Attorney’s Office for the Northern District of California to execute a search warrant for Robinhood CEO Vladimir Tenev’s cellphone.

Apparently, the scrutiny over GameStop isn’t over, as this new filing shows. Both the SEC and FINRA sent additional inquiries to Robinhood “related to employee trading in certain securities that were subject to the Early 2021 Trading Restrictions, including GameStop Corp. and AMC Entertainment Holdings, Inc., during the week of January 25, 2021,” according to the disclosure. The inquiry includes a probe of whether Robinhood employees traded these securities prior to the company announcing Jan. 28 that it would restrict trading in these stocks, the disclosure goes on to say.

As for Tenev, CEO of Robinhood, and co-founder Baiju Bhatt, FINRA is seeking documents and information “related to its compliance with FINRA registration requirements for member personnel,” which includes “the FINRA non-registration status of Mr. Tenev and Mr. Bhatt.” 

The disclosure reveals no further information on the matter, and a FINRA spokeswoman didn’t respond to a request for comment. In general, FINRA requires anyone engaged in the securities business at a company — ”which includes salespersons, branch managers, department supervisors, partners, officers and directors” — to be registered with the regulator, according to its website.

Robinhood has faced a series of penalties from the SEC and FINRA in recent years. Most recently, FINRA issued its largest penalty ever against the firm over alleged “widespread and significant harm” to its customers, among other allegations.