Free stock-trading app maker Robinhood Market Inc. is reportedly being investigated over alleged nondisclosure as the company heads toward an initial public offering in the coming months.

The Wall Street Journal reported today that the U.S. Securities and Exchange Commission is investigating allegations that Robinhood previously failed to disclose its practice of selling clients’ orders to high-speed trading firms.

The investigation is said to be at an advanced stage, with Robinhood facing a fine exceeding $10 million if it agrees to settle with the SEC. When that could happen is uncertain, but the report said a deal is unlikely to be announced this month because the two sides have not yet negotiated the proposed fine.

Robinhood neither confirmed nor denied the report, saying only that “we strive to maintain constructive relationships with our regulators and to cooperate fully with them.” The SEC also declined to comment.

The allegations are somewhat old in that Robinhood failed to disclose the practice on its website until 2018. The company, which does not charge trading fees for users, makes money in other ways. In this case it took payments from high-speed trading firms to send them customer orders to buy and sell stocks or options, a process known as payment for order flow. The process isn’t illegal, but not disclosing the practice upfront to clients is.

That said, some oppose payment for order flow because it’s claimed that it could lead to sophisticated traders exploiting mom-and-pop investors.

This isn’t the first time Robinhood has been accused of wrong or poor behavior, as the company has been regularly criticized for making it too easy for novice traders to make risky bets. In 2019 Robinhood paid $1.25 million to the Financial Industry Regulator Authority without admitting fault over a claim that it misled customers by saying it offers the best prices on customer trades while allegedly not doing so.

A possible low-eight figure-fine on an old claim, while not a good look, is likely nothing more than a minor speed bump for the company as it heads toward its IPO. The potential fine is also pocket change, since Robinhood has turned raising new venture capital into a sport this year. Rounds include $200 million Aug. 17, $320 million July 17 and $280 million May 4. As of its last round, the company was valued at $11.2 billion.

Photo: Robinhood