Robinhood Settles "Gamification" Case in Massachusetts for $7.5 Million

In a significant legal milestone, Robinhood, the popular trading app, has settled a lawsuit filed by the Massachusetts securities regulator. The case, first initiated in December 2020, accused Robinhood of enticing novice investors through what many referred to as "gamification" of cryptocurrency and stock trading. Secretary of the Commonwealth of Massachusetts, William Galvin, stated that Robinhood portrayed itself as a "game in which you can win," even suggesting the revocation of the firm's broker-dealer license in the state.

This global settlement marks the end of a nearly three-year legal dispute between the trading platform and the state of Massachusetts. Following the initial complaint in December 2020, Robinhood counter-sued the Galvin office, challenging a rule the state claimed the firm had violated. The case made its way back to court in 2023 after an appeal.

In addition to the allegations of "gamification," the Massachusetts securities regulator mandated that Robinhood address "serious cybersecurity issues." The trading firm vehemently denied the accusation of gamification and stated that it had taken numerous steps to address cybersecurity concerns since 2021.

Although Robinhood discontinued many of its gamification tactics after the securities regulator's complaints, this agreement ensures that, for Massachusetts clients, Robinhood will cease any future use of festive imagery tied to trading frequency, push notifications emphasizing specific stocks, and features resembling gambling. The Galvin office also requires Robinhood to add disclosure information to its lists and engage an independent regulatory compliance consultant to assess other digital interaction practices that continue to be used.

In 2021, the Financial Industry Regulatory Authority fined Robinhood approximately $70 million for causing "widespread and significant harm" to thousands of users. In April 2023, Robinhood reached a $10 million settlement with securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas following accusations that the firm had failed its clients due to numerous operational glitches.