Robinhood Under Investigation By SEC After Serious Concerns

( The Securities and Exchange Commission has launched a review of a share sale by a group of Robinhood investors.

On Wednesday Robinhood announced that a Resale S-1 has been filed on behalf of a group of its shareholders that received Class A common stock upon the automatic conversion of Tranche 1 convertible notes related to the commission-free trading platform’s IPO.

The company said in a statement that once the SEC completes its review, Robinhood would be filing an acceleration request to the SEC asking it to declare the Resale S-1 effective two business days later. No sales can be made off the Resale S-1 until the SEC completes its review and declares it effective.

The battle between the SEC and Robinhood has been ongoing.

On Friday, Robinhood said it is considering legal actions against the SEC after the agency said it could ban payment for order flow – one of Robinhood’s chief revenue sources.

Robinhood Chief Legal Officer Dan Gallagher, who himself is a former SEC commission, told Barron’s last Thursday that the idea of banning payment for order flow is “pretty draconian.” Gallagher added that this is the revenue “that provided us the ability to offer commission-free trading with no minimum balance.” As a result Robinhood would have to “seriously consider” taking the SEC to court in order to block the ban.

On Tuesday, Robinhood’s shares dropped after SEC Chairman Gary Gensler said that he was considering the ban on payment for order flow.

Payment for order flow is a controversial practice that compensates stockbrokers for routing trades to a particular market maker. Considered a kickback, the practice is already forbidden in Canada, Australia and the U.K. Gensler has said that a complete ban of the practice is “on the table.”

In his interview with Barron’s, Dan Gallagher said the payments don’t determine Robinhood’s choice of market makers, or harm its customers.

On their most recent earnings call, Robinhood executives said that they were confident the company could cope with losing order flow payments. However, the company’s SEC filings show that Robinhood would feel a hit if the practice were banned.