Robinhood Financial has fallen afoul of the Securities and Exchange Commission (SEC). The regulator has accused the company of failing to disclose the extent of its arrangements with high-speed traders, which in turn put its other clients at a disadvantage. Robinhood has agreed to pay $65 million to settle the matter.

According to an SEC announcement on Thursday, from 2015 to late 2018 the company "made misleading statements and omissions in customer communications, including in FAQ pages on its website, about its largest revenue source when describing how it made money -- namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution."

A stock market trading graph.

Image source: Getty Images.

This resulted in trade executions priced for Robinhood clients at what the SEC says were "inferior" to what other brokerages charged. Around that time, the company claimed on its website that its execution quality at least met that of its peers. All told, the regulator claims, this effectively shortchanged Robinhood customers by $34.1 million -- and that's taking into account the company's much-hyped free trading commissions.

Robinhood is neither confirming or denying the SEC's allegations. The SEC said that, among other measures, the company agreed to use an independent consultant to review its client communication practices and how it manages order flow.

While this shouldn't ding the brokerage's immense popularity among younger investors, it does illustrate that old "no such thing as a free lunch" adage. Zero-commission trading is now the standard with consumer-facing brokerages; even veterans of the industry such as Charles Schwab (SCHW -0.29%) have cut these fees, but the Schwabs of this world frequently have other robust sources of revenue.

Charles Schwab and its ilk also manage to make good coin by regularly following the rules. It remains to be seen whether Robinhood will adopt this habit, too.