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The company’s shareholders, however, stuck with it. Within a week, it raised two rounds of emergency funding totaling $4.4 billion to meet lending requirements for stock trades and to continue making trades. That funding resulted in Robinhood’s outsize loss in the first three months of the year.
Robinhood attracted scrutiny from regulators long before the GameStop frenzy drew the national spotlight. In 2018, it announced that it would offer checking and savings accounts, claiming it was already backed by the Securities Investor Protection Corporation, a consumer protection group that oversees brokerages. After the group said it did not insure checking and savings accounts, Robinhood backtracked and started the service a year later.
Last year, Robinhood was fined $65 million by the Securities and Exchange Commission over charges that it misled customers about how it makes money. And in recent months, Massachusetts has escalated a fight against the app, moving to revoke its license in the state, echoing other complaints that its app entices inexperienced investors to make risky bets.
The company also experienced outages at key moments, including in March last year, when the pandemic hit and stocks went into a free fall.
In its prospectus, Robinhood outlined regulatory scrutiny as a risk factor. It said it expected to be subject to investigations, actions and settlements in the future “given the highly regulated nature of the industries in which we operate.”
Robinhood also highlighted class-action lawsuits related to outages, securities fraud, hacking and the trading halt this year. The company settled a lawsuit by the family of Alex Kearns, a customer who died by suicide last year after making risky trades on Robinhood’s app.
“This is a company that is flying superfast in a really regulated environment,” Mr. Haslett said.
Another risk, Robinhood said, was a decline in the demand for Dogecoin, a joke cryptocurrency based on a meme about a Shiba Inu dog. One-third of the revenue from cryptocurrency trading in the first three months of the year came from Dogecoin, the company said.