Billionaire Charlie Munger had some unsavory words for the commission-free trading app Robinhood, comparing it to a “gambling parlor,” on the same day the brokerage app was fined a record $70 million by the Financial Industry Regulatory Authority.
The comments from the Berkshire Hathaway (BRK-B) vice chairman and longtime business partner of Warren Buffett came during an interview with CNBC late Tuesday. Munger, 97, criticized the app, saying it was “beneath contempt” and calling it a “sleazy, disreputable operation.”
He told CNBC, “It’s telling people they aren’t paying commissions when the commissions are simply disguised in the trading. It’s basically a sleazy, disreputable operation. And the interesting thing about it is that some good people you would be glad to have marry into your family and have backed it.”
Online brokers traditionally rely on payment for order flow to generate profits instead of taking commissions from investors. Here, a small fee is paid for routing shares that add up as customers make active trades.
When confronted about how Robinhood offers such access to young investors, Buffett, who was also in the interview with CNBC, balked and told the news outlet, “It’s not encouraging people to buy a very, very, very low-cost index fund and hold it for 50 years. I will guarantee you that you will not walk in there, get that advice. Instead, you’ll get advice on how you can trade options.”
She wrote in the blog about the billionaire investors who have both previously slammed the trading app, “If the last year has taught us anything, it is that people are tired of the Warren Buffetts and Charlie Mungers of the world acting like they are the only oracles of investing.
“And at Robinhood, we’re not going to sit back while they disparage everyday people for taking control of their financial lives,” she added.
The comments come as Robinhood has agreed to pay nearly $70 million to settle regulatory allegations, the largest FINRA financial penalty issued. Charges claim the brokerage misled customers, approved ineligible traders for risky activity, and locked millions of investors out of trading.
Robinhood, which has been panned by some critics for gamifying investing, is looking to go public later this summer with an IPO expected to be valued at $40 billion, according to Business Insider.
The company made headlines during the WallStreetBets craze that sent the shares of video game retailer GameStop’s stock up nearly 400%. Robinhood has been questioned about its practice of payment for order flow and its relationship with market-makers, according to the Post.
Shares of Berkshire Hathaway were trading at $277.92 as of 10:17 a.m. EDT on Wednesday, up $1.71, or 0.62%.
[if IE 9]><![endif]