On the brink of an expected initial public offering, Robinhood said the Financial Industry Regulatory Authority, or FINRA, is looking into the "non-registration" status of founders Vlad Tenev and Baiju Bhatt as part of a broader probe of the company's compliance with the industry regulator's rules.
The online brokerage, which is expected to go public this week, said the company on Monday received an "investigative request seeking documents and information related to its compliance with FINRA registration requirements for member personnel, including related to the FINRA non-registration status of Mr. Tenev and Mr. Bhatt."
Robinhood disclosed the investigation on Tuesday in an updated IPO filing with the Securities and Exchange Commission. FINRA requires anyone "associated with a brokerage firm who engages in the firm's securities business" to register with the regulatory body.
Robinhood is "evaluating this matter and intends to cooperate with the investigation," the company said in the filing. The company could not immediately be reached for additional comment on what impact the probe might have on the IPO.
Stephen Diamond, a law professor with Santa Clara University, said it appears that while key Robinhood staff are licensed, it is possible that Tenev and Bhatt "thought they could skip that step."
"Clearly FINRA disagrees," he told Protocol.
Robinhood had also announced in June that it was paying a $57 million fine to FINRA plus more than $12 million in restitution to customers for misleading customers and failing to maintain its technology during outages. It was the highest fine ever imposed by FINRA.
Correction: This story was updated to correct the amount that Robinhood was fined. This story was updated August 2, 2021.