FINRA is investigating Robinhood over its CEO, Vlad Tenev’s, failure to register as a broker with the Financial Industry Regulatory Authority, a self-regulatory organization responsible for overseeing the brokerage industry.
Congress has authorized FINRA to protect investors by ensuring fair and honest dealing in the brokerage industry. One of the key ways FINRA accomplishes this is by overseeing more than 600,000 individual brokers across the country, who each must maintain a FINRA broker’s license by undergoing strenuous application and continuing education requirements. However, Vlad Tenev, Robinhood’s CEO, has never obtained FINRA registration.
Requiring heads of firms like Robinhood to register with FINRA would increase accountability on Wall Street. This is especially important in light of Robinhood’s recent initial public offering (NASDAQ: HOOD). The company currently has a market cap of just under $30 billion.
Robinhood Under Increased Scrutiny In Past Months
Robinhood has found itself in the spotlight in recent months for a variety of issues including, but not limited to, Robinhood’s handling of volatile trading surrounding “meme stocks” AMC, GameStop, and others.
FINRA Rules Require Those Engaged in Securities Business To Register
FINRA Rule 2010 requires that “[e]ach person engaged in the investment banking or securities business of a member shall be registered with FINRA as a representative or principal.” According to FINRA’s website, this includes salespeople, branch managers, department supervisors, partners, officers and directors. Moreover, FINRA’s website states: “we require individuals and firms who wish to conduct business with the investing public to achieve and maintain certification as members of FINRA.”
Robinhood has previously come under scrutiny for Tenev’s lack of FINRA registration, and took the public position that Tenev is the CEO of Robinhood Markets Inc., which is simply the holding company for the brokerage entity Robinhood Financial LLC. Accordingly, under Robinhood’s theory, Tenev is under no obligation to register with FINRA.
Unregistered Brokerage CEOs An Industry Norm
Unfortunately, Tenev’s lack of registration is not an exception to the rule. FINRA regulations currently permit brokerage executives to operate firms without being registered themselves. This includes the heads of “boiler rooms” – brokerage firms that cold call investors and make extremely aggressive sales pitches for high-risk, speculative, and flawed securities – and other fraudulent operations.
Main street investors are the victims of this framework, as brokerage executives are able to evade FINRA jurisdiction and oversight and investors face significant legal hurdles to hold these controlling individuals accountable.
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