WASHINGTON— Robinhood Markets Inc. has for years given customers a free share of stock for opening an account or referring friends. The practice could soon cost the online brokerage a lot more money.
Brokerages like Robinhood are required to deliver proxy materials to a public company’s shareholders ahead of annual meetings. They are then reimbursed by the public company for the cost of distribution.
This means that Robinhood’s stock giveaways have saddled some companies with larger bills for delivering proxy statements. Now, the practice is sparking a backlash from companies and scrutiny from market regulators.
One company pushing back is Florida-based drugmaker Catalyst Pharmaceuticals Inc., which says Robinhood’s program cost it more than $200,000 last year and could be even more expensive this year.
“Catalyst has become aware that Robinhood has been giving away shares of Catalyst’s common stock at no charge as part of its promotional program,” Catalyst Chief Executive Patrick McEnany wrote in a June comment letter to the Securities and Exchange Commission. “Catalyst believes that there are likely numerous companies facing this same issue, and that the costs of distributing materials to small stockholders under these circumstances is onerous and unreasonable.”
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