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The company behind popular U.S. trading app Robinhood is paying US$65 million to settle allegations that its “commission free” trading actually cost investors millions in poor trade executions.

The U.S. Securities and Exchange Commission (SEC) charged Robinhood Financial LLC with violating securities rules by repeatedly failing to disclose that it receives payments for order flow, and for failing to meet its best execution obligations.

According to the SEC’s order, the firm was able to offer commission-free trading to clients “due in large part to its unusually high payment for order flow rates,” which resulted in orders being executed at inferior prices.

The SEC found that the poor trade pricing cost customers a total of US$34.1 million, even after factoring in the lack of trading commissions.

“Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm,” said Stephanie Avakian, director of the SEC’s enforcement division, in a statement. “Brokerage firms cannot mislead customers about order execution quality.”

The firm agreed to pay US$65 million to settle the charges, without admitting or denying the SEC’s findings.

As part of the settlement, it also agreed to hire an independent consultant to review its policies involving payment for order flow, best execution and client disclosure.

“The settlement relates to historical practices that do not reflect Robinhood today,” said Dan Gallagher, Robinhood’s chief legal officer, in a statement.

The firm also said it has “significantly improved our best execution processes” and “established relationships with additional market makers to improve execution quality.”

“There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money. But innovation does not negate responsibility under the federal securities laws,” said Erin Schneider, director of the SEC’s San Francisco office, in a statement.

On Dec. 16,  Massachusetts secretary William Galvin also charged Robinhood with violating state law by aggressively recruiting clients using “gamification” tactics to encourage repetitive trading, and breaching fiduciary standards by encouraging risky, unsuitable trading, among other allegations.

Those allegations have yet to be proven, and the company has indicated that it intends to contest those charges.

“We disagree with the allegations in the complaint by the Massachusetts Securities Division and intend to defend the company vigorously,” the company said in a statement.