6 Things We Learned From Robinhood's IPO Filing
For one thing, Chief Legal Officer Dan Gallagher is making a lot more than he did as an SEC commissioner.
Hot on the heels of a hefty $70 million regulatory settlement, the largest in FINRA history, retail broker Robinhood has launched its IPO.
An initial public offering would have been enough to keep the company’s legal department busy, but the settlement news came just days before. “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all,” the company said in a statement via communications chief Jacqueline Ramsay, when asked about the matter.
While Robinhood declined to talk further about the settlement, the firm’s S-1 filing offered a peek into the company’s legal department and the many issues its lawyers have been juggling.
1. Robinhood Is Still Under Fire for Trading Restrictions
Many of Robinhood’s current headaches stem from having restricted trading of certain securities on Jan. 28, a move prompted by the now-infamous GameStop short squeeze. No less than 52 lawsuits across various jurisdictions continue to haunt Robinhood due to those restrictions, with plaintiffs alleging breach of contract, negligence, and other common-law claims.
2. CLO Dan Gallagher Makes Bank
With that in mind, being the company’s legal chief is a big job. So perhaps it’s no surprise that Chief Legal Officer Dan Gallagher made $30 million total last year from stock options, bonuses and salary. The former SEC commissioner (he served from 2011 to 2015) joined Robinhood in October 2019 before his promotion to CLO in May 2020. His base pay is just north of $250,000, but he was paid $4.2 million in bonuses and more than $24 million in stocks.
3. If Dogecoin Tanks, Robinhood Could Hurt
Having become a household name on the back of cute dogs and Elon Musk tweets, the cryptocurrency known as Dogecoin has driven much of Robinhood’s recent growth, the company admitted. It also warned investors that if demand for Dogecoin declines, Robinhood’s financial stability could be threatened.
4. March 2020 Outages
January’s restrictions aren’t the only trading halts giving Robinhood long-term trouble. On March 2, 3 and 9, 2020, Robinhood’s platform experienced an outage preventing customers from making trades. About $3.6 million has already been spent remediating customer losses, but lawsuits were nevertheless filed, alleging gross negligence, breach of contract and unjust enrichment, the company’s S-1 said. The Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission are both investigating as well.
5. New York Alleges Inadequate Money Laundering Protection
In March 2021, the New York State Department of Financial Services reported that Robinhood failed to maintain an adequate anti-money laundering program and didn’t meet cybersecurity and cryptocurrency requirements. Lack of risk assessment procedures were another strike against Robinhood, which now estimates that NYSDFS penalties will amount to at least $10 million.
6. Account Takeovers
Back at FINRA, the regulatory agency has also identified several hacked accounts, and found more evidence of cybersecurity issues. January saw the filing of a class action suit against Robinhood over 2,000 such account takeovers in 2020 alone, the S-1 said.
Pictured: Chief Legal Officer Daniel Gallagher of Robinhood