Court Orders Robinhood to Pay $9M for Referral Violations

A U.S. judge has ordered Robinhood Financial LLC to pay a $9 million settlement. This decision comes after allegations that its referral program contravened consumer protection laws. 

Judge Barbara Rothstein of the U.S. Western District Court of Washington delivered the ruling, underscoring the ongoing scrutiny of promotional practices within the finance sector.

Legal proceedings and settlement details

The class-action lawsuit against Robinhood focused primarily on its “refer-a-friend” program, allegedly sending unsolicited promotional messages directly to potential new customers.

Plaintiffs Andrew Gillette and Cooper Moore led the charge in this legal battle, claiming that these referral text messages were distributed without the explicit consent of the recipients, thereby breaching the Washington State Consumer Protection Act and the Commercial Electronic Mail Act. 

In response to these allegations, a court settlement mandates that Robinhood must pay $9 million. Furthermore, additional compensation for attorney fees and other litigation costs will be provided, totaling approximately $2.34 million. In recognition of their significant contributions to the case, Gillette and Moore will each be awarded $10,000.

Judicial review and observations

Judge Rothstein’s findings strongly emphasized the fairness and adequacy of the settlement terms, taking into account the complexity and the potential high costs of prolonged litigation. 

The judge highlighted that the class’s legal representation had effectively and diligently safeguarded the interests of individuals impacted by Robinhood’s aggressive marketing strategy. 

The judge also acknowledged the significant challenges in establishing liability and accurately quantifying damages, which greatly influenced her decision to approve the settlement terms.

Impact and broader implications

The lawsuit specifically focused on how Robinhood’s app enabled users to send referral messages from their contacts from August 2017 to February 2024 to individuals who had not agreed to receive such communications. 

Despite Robinhood denying these claims, the court’s approval of this settlement might encourage other companies within the industry to reassess their marketing techniques to carefully sidestep comparable legal disputes. In response to the settlement’s announcement, Robinhood’s stock price, traded under the HOOD ticker, declined 1.8%, indicating the market’s reaction to the judicial ruling.

This case is a pertinent reminder of the stringent regulations governing marketing practices and the importance of adhering to consumer protection laws, especially within the dynamically evolving online trading space.

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