"involved in numerous litigation matters" and "have been subject to regulatory investigations ... expect to continue to be subject to such proceedings" coming in on the heels of record-setting fines moves these risk factors from the usual corporate boilerplate to quite acute issues.

I'm skeptical that this claim is true. Even a cursory look at news articles related to Robin Hood shows that these concerns are way more than boilerplate legalese.

Most companies that go public haven’t recently violated securities laws and most don’t readily admit that they’ll probably do it again. (But at least they’re truthful in their disclosure! As required.) They also have the boilerplate “this is a highly regulated industry” language as a separate risk:

> Our business is subject to extensive, complex and changing laws and regulations, and related regulatory proceedings and investigations. Changes in these laws and regulations, or our failure to comply with these laws and regulations, could harm our business.

This risk also stood out to me because it’s something I usually associate with SPACs:

> As a result of our recent settlement with the SEC, we are currently considered an “ineligible issuer,” which limits our ability to use certain free writing prospectuses in securities offerings and will delay our ability to qualify as a “well-known seasoned issuer” in the future.

SPACs are an ineligible issuer because they’ve been a blank check company, shell company, or penny stock issuer in the last three years. While I don’t have many nice things to say about SPACs the ineligible issuer language is pretty benign boilerplate in that situation.

RH, on the other hand, is an ineligible issuer because they were C&D’d by the SEC for violating the anti-fraud provisions of the federal securities laws in the last three years. Companies typically seek to avoid committing securities fraud in the run up to their IPO. So while the risk factor itself (not a WKSI) isn’t necessarily unusual the reason for the risk is and it speaks directly to management’s (at best) inability to appropriately manage the regulatory risk or (at worst) lack of trustworthiness.

I think it is one thing to have regulatory risks(of course those are always present), but another to have a recent history of investigation and to be wrapping up the largest fine in history.

Obviously some or even many people will take these risks as a possible promise of greater returns and for the sake of Rh, I hope they get better and better at navigating the regulatory waters. It would be interesting to see the financials if and when another prolonged downturn happens.