July 1 (Reuters) – Robinhood Markets Inc set the stage for its much-anticipated IPO on Thursday, as it revealed rapid growth in the number of users of its trading app on a dossier, while also reporting a series of ‘investigations by prosecutors and regulators.

The company, under scrutiny after this year’s trading frenzy for so-called memes stocks such as GameStop (GME.N), is aiming for an IPO valuation of more than $ 40 billion, Reuters reported.

Robinhood’s IPO brief first explained how the trading craze, which swept away amateur investors, quadrupled its earnings from January to March, and also how its rapid expansion came at a cost.

He announced a net loss of $ 1.4 billion for the period after borrowing $ 3.5 billion via convertible bonds to support the wave of trading orders amid the rally of a few stocks, which had been sold short by hedge funds and championed by individual investors in online discussion forums, including Reddit. WallStreetBets.

His handling of the troubled memes market frenzy followed by trade restrictions has drawn the ire of many US users and lawmakers.

Lawyers and regulators, who were already examining Robinhood’s aggressive marketing to investors and how it profits from trading orders, have doubled their scrutiny.

An investigation by the U.S. Attorney’s Office in California even resulted in a search warrant for the cell phone of Robinhood co-founder and CEO Vlad Tenev, according to the IPO filing.

A spokesperson for the U.S. Attorney’s Office in Northern California declined to comment.

Earlier this week, the Menlo Park, Calif.-Based company agreed to pay a $ 70 million fine in a settlement with U.S. financial regulators who accused it of failing to screen its clients and put in place risk controls.

Robinhood and CEO Tenev were subpoenaed and received requests for information from several government agencies, including the US Department of Justice and the US Securities and Exchange Commission, according to the filing.

The company has also been sued this year by the family of a 20-year-old stock trader who committed suicide, citing the app’s “misleading communications” that panicked their son over what he believed to be. wrong to be huge market losses. Read more

The majority of Robinhood’s income comes from “order flow payment”. As part of this practice, brokers receive a commission from market makers to route trades to them.

Critics argue that this creates a conflict of interest situation, in which brokers are tricked into sending orders to whoever pays the most, which is not necessarily the best deal for clients. Regulators are scrutinizing Robinhood on this.

In the first quarter of this year, 59% of Robinhood’s revenue came from four market makers. Its revenue last year was $ 959 million, the company said.

Robinhood turned profitable in 2020, posting a net profit of $ 7 million, compared to a loss of $ 107 million in 2019.

The company had around $ 12 billion in cryptocurrency assets in custody as of March 31, 2021, a 23-fold jump from the previous year. More than 9.5 million customers have traded approximately $ 88 billion in cryptocurrency on the Robinhood platform during the same period.

ESSENTIAL APPLICATION FOR YOUNG INVESTORS

Founded in 2013 by Tenev and Baiju Bhatt, roommates at Stanford University, Robinhood’s trading app has made it easier for the masses to trade stocks and electrified a generation of retail traders.

The platform’s easy-to-use interface has made it a staple for young investors stuck at home due to the pandemic, and its popularity has skyrocketed over the past 18 months.

Arguably the financial tech startup of his generation, Robinhood has captured the imaginations of Silicon Valley’s biggest investors, who have invested billions of dollars in the company. It challenges age-old investment rules by rejecting the role of financial advisers.

“Some experts poke fun at individual stock ownership and say people should only invest in funds that are passively managed through an advisor. We reject that, and we think it’s important to be able to own stocks. directly into the companies you love, without any middleman. ”Tenev and Bhatt said in the IPO filing.

Robinhood said underwriters would reserve between 20% and 35% of its Class A shares for sale to clients through its IPO access feature, a platform it unveiled in May to give retail investors the possibility of acquiring shares in IPOs. Read more

Robinhood has raised more than $ 5.5 billion from investors since its launch, including Ribbit Capital, ICONIQ, Andreessen Horowitz, Sequoia Capital, Index Ventures and New Enterprise Associates.

Its valuation has nearly tripled in the past year alone, with funding in February valuing the company at around $ 30 billion, according to people familiar with the matter.

The online brokerage firm plans to list on Nasdaq under the symbol “HOOD”. Read more

Goldman Sachs and JPMorgan are the main underwriters of the offer.

Reporting by Anirban Sen and Noor Zainab Hussain in Bengaluru; Additional reporting by Michelle Price and Chris Prentice in Washington DC and Niket Nishant and Sohini Podder in Bengaluru; Editing by Sriraj Kalluvila, Greg Roumeliotis and Himani Sarkar

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