Robinhood Markets (NASDAQ:HOOD) faced a sharp 13% decline in its stock price at 10.54am today, after agreeing to pay a $29.8 million fine imposed by the Financial Industry Regulatory Authority. The penalty stems from multiple alleged violations, including failures in its clearing technology system and anti-money laundering programs. Regulators found that Robinhood converted market orders into limit orders without providing customers with accurate disclosures, failed to detect or report suspicious activity, and inadequately supervised its clearing operations, particularly during heightened trading volumes. The firm also came under scrutiny for not properly monitoring social media promotions from compensated influencers, some of whom made misleading claims to investors.

• Warning! GuruFocus has detected 6 Warning Signs with HOOD.

The settlement, which includes a $26 million civil fine and $3.75 million in customer restitution, marks another regulatory setback for the retail trading platform. FINRA highlighted Robinhood's inability to address key compliance "red flags," especially during the 2020-2021 meme stock frenzy, where its oversight of manipulative trades and suspicious transactions was deemed insufficient. Adding to the controversy, the company was found to have opened thousands of accounts without adequate identity verification, further exacerbating anti-money laundering concerns. Despite these compliance lapses, Robinhood neither admitted nor denied wrongdoing in the settlement.

While these regulatory challenges cast a shadow over its operations, Robinhood recently reported a record net income of $916 million and surpassed $1 billion in revenue for Q4 2024, with a significant share coming from cryptocurrency trading. This latest penalty follows a $45 million settlement with the SEC in January over record-keeping and trade reporting violations, underscoring ongoing regulatory scrutiny. Yet, with its crypto business escaping SEC enforcement action last month, the firm may still have room to regain investor confidenceif it can tighten compliance and restore trust in its trading platform.