Robinhood, the venture-funded brokerage company, announced on Thursday that it was offering checking and savings accounts that would earn 3% interest, an impressive offer in an industry where the best interest rates on savings accounts are around 2%.
Robinhood said deposits were insured up to $250,000 by the Securities Investor Protection Corporation (SIPC), but the non-profit industry group quickly pushed back on that claim, after Barron’s reached out to the group’s CEO Stephen Harbeck.
Today, Harbeck continued to cast doubt on Robinhood’s insurance claims. On Friday afternoon, he told Barron’s that cash held in these Robinhood accounts is “out of the universe of cash that we protect.”
He added that he had referred his concerns to the Trading and Markets Division of the Securities and Exchange Commission. Robinhood, he says, is “a regulated entity, and I reached out to their regulator.”
Asked if the SEC had already been in contact with Robinhood, Harbeck said, “If they have not been, they will be. I’m sure.”
Privately held Robinhood has raised $539 million to date, according to Pitchbook and was valued at $5.2 billion as of May 2018. Its venture-capital investors include Sequoia Capital, Kleiner Perkins, and Thrive Capital.
Robinhood didn’t respond to multiple requests for comment on Friday. The SEC also didn’t immediately respond to a request for comment.
Robinhood, Harbeck said, had not reached out to him or any other SIPC staff leading up to the company’s announcement.
Robinhood’s checking and savings accounts, unlike traditional checking accounts, including those offered by brokers Fidelity and Charles Schwab , are not insured by the Federal Deposit Insurance Corporation (FDIC). Rather, Robinhood said the accounts are protected by the SIPC, a non-profit membership corporation that, in part, helps to protect customer funds when a brokerage firm fails.
However, the SIPC does not protect brokerage customers from investment losses, and its website makes a clear distinction between its function and the FDIC’s. “It is important to understand that SIPC is not the securities world equivalent of the FDIC, which insures depositors of insured banks,” the website says.
Barron’s Avi Salzman was the first reporter to zero in on the lack of FDIC insurance in an interview published Thursday with Robinhood co-founder Baiju Bhatt. In that interview, Bhatt appeared unsure what SIPC stood for and a PR handler interjected to note that the acronym stands for the Securities Investor Protection Corporation.
In an email exchange published Thursday, Harbeck told Barron’s that the “SIPC protects cash that is deposited with a brokerage firm for one limited purpose…the purpose of purchasing securities.” He added, “Cash deposited for other reasons would not be protected.”
Robinhood did not respond to requests for additional comment from Barron’s, but on Friday Axios quoted a spokesperson as saying: “We added new features to our Robinhood brokerage platform and are thrilled to give customers the opportunity to invest, save, and manage their money all in one Robinhood brokerage account. Robinhood brokerage accounts are protected by SIPC insurance.”
Robinhood is best known for its investing app that offers commission-free stock trading. “Since 2015, we’ve focused on making the financial system work for everyone by offering commission-free investing in stocks, ETFs, options, and cryptocurrencies,” the company said in its checking and savings announcement.