Robinhood’s crypto unit plans $ 10 million fine for cyber money laundering violations

Robinhood Markets cryptocurrency brokerage expects to pay New York regulators a fine of at least $ 10 million for allegedly breaking state rules on cybersecurity and anti-virus practices. money laundering, the company said in documents filed last week.

The unit, Robinhood Crypto, has reached an agreement in principle on a New York State Department of Financial Services investigation, the mobile investment firm said in the filing.

The eventual penalty could exceed $ 15 million, the company said in a document filed July 1 for its IPO. Any deal would also require the unit to hire an independent monitor, the company added.

NYDFS declined to comment on the talks, citing an ongoing investigation. Robinhood also declined to comment.

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The disclosure comes as cybersecurity experts and US regulators warn criminal hacking groups could increasingly target critical infrastructure, including financial services companies, and hold IT systems hostage for crypto ransoms -change. After recent hacks of Colonial Pipeline and meatpacker JBS SA disrupted U.S. supply chains, the Biden administration said it would examine the role of cryptocurrency in fueling the ransomware economy.

New York regulators are asking financial companies to maintain anti-money laundering programs that include verifying customer information, responding to law enforcement inquiries, and monitoring transactions for risks such as the violation of sanctions. State rules also require these companies to put in place cyber defenses and contingency plans to help limit the fallout from attacks.

NYDFS informed Robinhood’s crypto affiliate of alleged rule violations in March, the company said in its regulatory filing with the Securities and Exchange Commission. The cyber notification highlighted “some gaps in our policies and procedures regarding risk assessment, the lack of an adequate incident response and business continuity plan, and gaps in the security of the business. development of our applications, ”the company said.

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Robinhood warned investors last week that cyber attacks could hurt its results. Last year, the company said some user accounts had been compromised, with Bloomberg News putting the number at 2,000. Some users claimed in a class action lawsuit in U.S. District Court for the Northern District of California that the attackers had stolen millions of dollars from their accounts. Robinhood has decided to dismiss the lawsuit, which is ongoing and said it will reimburse customers for money stolen in any hack.

The SEC, the Financial Industry Regulatory Authority and New York State have since opened investigations into the takeovers. It was not clear whether last year’s incident was related to the proposed New York settlement.

Robinhood has come to the attention of regulators in recent months as retail investors have thrown money into the markets, occasionally speculating on so-called shares of companies like GameStop and AMC Entertainment Holdings. Last week, Finra said Robinhood agreed to pay $ 70 million to resolve allegations that it misled customers, approved ineligible traders, and failed to properly oversee its technology. The total included a fine of $ 57 million and $ 12.6 million in compensation to customers.

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The ongoing New York investigation isn’t the only state-level investigation into Robinhood Crypto. In April, the company said, the California attorney general’s office issued a subpoena for documents and information on the subsidiary’s trading platform and operations.

The attorney general’s office did not immediately respond to a request for comment. Robinhood said in documents filed with the SEC for its IPO that its cryptocurrency brokerage is cooperating with this investigation.

“We cannot predict the outcome of the investigation or the consequences that may result,” Robinhood said.

Write to David Uberti at [email protected]

This article was published by Dow Jones Newswires

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