Robinhood IPO: 10 things to know including increased revenues, legal scrutiny and regulatory fines

Here are 10 things to know about the Robinhood IPO

Robinhood, the online brokerage at the centre of Wall Street's recent retail trading frenzy, disclosed paperwork for its flotation on the Nasdaq, setting the stage for one of the most hotly anticipated initial public offerings of the year.

Robinhood's move to go public comes months after the company found itself at the center of a confrontation between a new generation of retail investors and Wall Street hedge funds in late January.

Here are 10 things to know about the Robinhood IPO:

1. Robinhood's revenues surged amid the pandemic induced lockdowns as as it fed on the surge in trading by ordinary Americans stuck at home.The company reported a 245 percent jump in revenue last year, according to the IPO filing.Revenue for the year ended Dec. 31, 2020 rose to $959 million, the company said. Net income was $7 million, compared to a loss of $107 million a year earlier.
2. Robinhood was founded in 2013 by Stanford University roommates Vlad Tenev and Baiju Bhatt. Its platform allows users to make unlimited commission-free trades in stocks, exchange-traded funds, options and cryptocurrencies.
3. Robinhood, which plans to list on the Nasdaq, confidentially submitted plans in March to regulators for a U.S. IPO.
4. To date, the startup has paid more than $136 million to settle regulators' allegations of wrongdoing, including a $70 million penalty announced by the Financial Industry Regulatory Authority (FINRA) on Wednesday. While those penalties are small by Wall Street standards, Robinhood's legal expenses are growing fast, jumping from $1.4 million in 2019 to $105 million last year, the filings show.
5. The company found itself at the center of a confrontation between a new generation of retail investors and Wall Street hedge funds in late January when it imposed trading restrictions during a meme stock frenzy in January 2021.
6. Following this episode, Robinhood said that regulators had issued subpoenas or sought testimony and information from the company and CEO Vladimir Tenev as part of investigations. Perhaps the biggest revelation, though, was that authorities also took the unusual step of seizing Tenev's cell phone, Robinhood said, without elaborating.
7. Robinhood also revealed what appeared to be a previously unreported probe by New York's Department of Financial Services (DYFS) focused on anti-money laundering and cybersecurity issues that the company expects to settle for around $15 million.
8. Unrelated to the meme stock episode, the Massachusetts Securities Division (MSD) sued Robinhood in December alleging unethical and dishonest conduct and failure to act in accordance with its fiduciary duty among other lapses. Robinhood is fighting the suit. The company is also the target of more than 50 private lawsuits related to January's trading restrictions and other issues.
9. Regulators are also scrutinizing Robinhood's business model, most notably payment-for-order-flow (PFOF), whereby brokers route retail orders to wholesale brokers in return for payment. PFOF and other transaction rebates accounted for 75% of Robinhood's $959 million in 2020 revenues, Robinhood said.
10. The company is also undergoing scrutiny by the Securities and Exchange Commission (SEC) for "gamification," the use of game-like features to encourage trading, as well as other rules relating to liquidity and risk management.