FINRA Orders Robinhood Financial to Pay $3.75 Million in Restitution to Customers
It all begins with an idea.
On March 7, 2025, FINRA issued a news release announcing that it had ordered Robinhood Financial to pay $3.75 million to its customers and that it had assessed fines in the amount of $26 million against the firm and its affiliates for violation of numerous FINRA Rules. The violations alleged by FINRA included alleged conduct related to (i) disclosures involving the “collaring” of market orders by converting them to limit orders, (ii) failing to implement anti-money laundering programs, (iii) failing to establish a reasonable customer identification program, and (iv) various failures to supervise and failures to respond to “red flags.” Robinhood Financial and Robinhood Securities consented to the findings, without admitting or denying FINRA’s charges.
FINRA Alerts Investors about Fraudulent “Smishing” Scams
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On March 6, 2025, FINRA issued an “investor insight,” discussing the emergence of “smishing” scams, a type of cybersecurity fraud that is perpetrated through fraudulent text messages. The term “smishing” is from the combination of “SMS” (short message service, i.e., text messaging) and “phishing.” Smishing involves the sending of unsolicited messages that ask the recipient of the message to click on a link or provide sensitive information. The harm caused by smishing can include data theft or the downloading of malicious software onto the recipient’s device. The FINRA alert contains helpful information concerning steps that can be taken to avoid the risk of falling victim to a smishing scheme and steps to take if a person becomes subject to such a scheme.
FINRA Orders Firms to Pay in Excess of $8.2 Million in Restitution to Mutual Fund Investors
On December 20, 2024, FINRA issued a news release concerning an order it issued to three firms - Edward Jones, Osaic Wealth, Inc. and Cambridge Investment Research, Inc. — to pay restitution to customers of more than $8.2 million to customers harmed by the firms’ failures to provide the customers with mutual fund sales charge waivers and fee rebates. As a result of its investigation, FINRA alleged that the firms failed to establish and maintain a supervisory system reasonably designed to determine whether customers were eligible to receive the waivers or rebates in connection with reinstatements. Certain mutual fund issuers offer reinstatement rights, which allow mutual fund investors to reinvest in shares of a fund or fund family without incurring front-end sales charges or to recover contingent deferred sales charges. The firms settled the claims, without admitting or denying FINRA’s charges.
United States District Court for the Western District of Pennsylvania Announces Revised ADR Policies and Procedures
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The United States District Court for the Western District of Pennsylvania recently announced revised alternative dispute resolution policies and procedures for cases pending before the Court. The Court’s revised Early ADR Policies and Procedures will take effect on January 1, 2025.
The substantive changes from the policies and procedures that are currently in effect are minimal, as most of the changes simply reformat or reorganize the same policies and procedures that already are in effect. One substantive revision relates to the conduct of mediations and the new procedures allow mediators to require the parties to submit written mediation statements. Under the current procedures, mediators are not permitted to require mediation statements. Another revision relates to early neutral evaluations, but this revision simply codifies what most would regard as existing practice by setting forth several limitations to the authority of an ADR neutral serving as evaluator. In particular, the revised policies and procedures expressly provide that an ADR neutral conducting an early neutral evaluation does not have the authority to (i) determine the issues in the case, (ii) to impose limits on parties’ pretrial activities, or (iii) impose sanctions.
Opinion in Fraudulent Wire Transfer Case Applies Uniform Commercial Code Article 4A
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On September 10, 2024, Judge Nora Barry Fischer of the United States District Court for the Western District of Pennsylvania issued a lengthy opinion applying Article 4A of the Uniform Commercial Code in a case involving claims for fraudulently induced wire transfers. Elkin Valley Baptist Church v. PNC Bank, N.A., et al., No. 23-1798, 2024 U.S. Dist. LEXIS 162888, at *32 (W.D. Pa. Sept. 10, 2024). The opinion addresses a number of issues that arise in fraudulent wire transfer cases in connection with the UCC’s allocation of liability among the originator of the wire transfer, the “recipient bank” and the “beneficiary bank.” Significantly, Judge Fischer explained that under UCC § 4A-207(c), “the originator’s bank bears the loss where the beneficiary’s bank did not know of the misidentification (i.e., a discrepancy or “mismatch” as between the account owner and the account number), its acceptance was thus valid, it paid the wire by account number to a non-entitled payee, and the originator’s bank had not notified the originator that the beneficiary’s bank might so proceed.” The last clause of that quotation refers to disclosures that may be provided by an originating bank under UCC § 4A-207(c) in order to avoid liability when the beneficiary bank did not know of the misidentification, and Judge Fischer ruled that in the Elkin Valley case, the disclosures provided by the originating bank, First National Bank of Pennsylvania, were not sufficient. Because of Judge Fischer’s detailed analysis of numerous issues under Article 4A, the Elkins Valley case is now one of the most important decisions addressing the allocation of losses in fraudulent wire transfer cases.