"Making Investing Like a Game" Robinhood, Creator of the US Version of 'Donghak Gaemi', Faces Lawsuit

[Asia Economy Reporter Jeong Hyunjin] Robinhood, a US online stock trading service company that led the American version of the 'Donghak Ant' craze, has been sued for encouraging risky trades without properly informing novice investors about the dangers of stock trading and without appropriate measures to protect them. It was particularly criticized for 'gamifying' investing and putting customers at risk.

According to Bloomberg and others on the 16th (local time), William Galvin, Secretary of the Commonwealth of Massachusetts, announced that he filed an administrative lawsuit requesting fines against Robinhood for these reasons. He stated, "As a stockbroker, Robinhood has a duty to protect its customers and their money," adding, "Treating it like a game and enticing young customers with no stock trading experience to make more trades is not only unethical but also falls far short of the standards required in our state."

In a 23-page complaint, Secretary Galvin claimed that Robinhood gamified its application (app) to encourage stock trading and engaged in aggressive marketing without considering the best interests of its customers. For example, the complaint cited a case where a Robinhood customer with no prior stock trading experience made over 12,700 stock trades in just six months.

This lawsuit is the first case filed based on the Massachusetts trust regulations created by Secretary Galvin last September. He pointed out that Robinhood is "only interested in expanding its market base and not in providing services to investors," criticizing the company for being careless with investors.

Secretary Galvin requested the court to impose fines on Robinhood and mandate the hiring of external consultants to review the platform and policies.

In response, Robinhood denied the allegations, stating, "We are a voluntary stock brokerage service and do not encourage investments," and announced that it would actively pursue legal action. Robinhood claimed, "Over the past several months, we have worked hard to scale our system and make it available when people need it," adding, "We have provided and improved various options, including safeguards and educational materials."

Headquartered in Menlo Park, California, Robinhood has gained popularity with over 13 million subscribers by offering a service that allows anyone to trade stocks easily at low cost. Especially after the COVID-19 pandemic, from March onward, as market volatility increased, the explosive growth of subscribers in their 20s and 30s became a factor shaking the New York Stock Exchange.