robinhood markets has been giving away free stocks but that comes with a cost for the companies behind those stocks and some of them want robinhood to pay the bill it’s another example of how new trends in financial services can sometimes run up against practices designed for an older way of doing business robinhood ticker hood gives away free stocks to new users when they sign up for its brokerage app or to existing users who refer friends robinhood pays for the cost of the stocks and given the company’s extremely fast user growth and relatively low customer acquisition costs it appears to be a smart promotion but there is another bill that comes due based on those transactions when brokers send out proxy statements on behalf of companies the companies reimburse brokers for that cost according to a wall street journal report the costs are starting to add up for some companies prompting the securities and exchange commission to step in one company that spoke out about the issue is catalyst pharmaceuticals cprx which said it had to pay more than 200000 last year and may face even higher charges this year “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” ceo patrick mcenany wrote in a june 9 letter to the sec catalyst shareholder base ballooned to 280000 last year from 25000 the year before and its proxy costs rose to 234000 from 12500 the journal noted the new york stock exchange received permission from the sec this month to prohibit brokers from asking for reimbursement from companies for shares they got free robinhood isn’t a member of the nyse but the rule could expand the journal reports that other companies want the financial industry regulatory authority or finra to make it an industrywide standard robinhood added 74 million funded accounts in 2020 ending the year with 125 million it added another 10 million in just the first six months of this year asked about how much it would cost robinhood to fund all of the proxy costs the company did not have an immediate answer robinhood ended the second quarter with more than 5 billion in cash on its balance sheet up from 14 billion at the start of 2021 robinhood shares were down 3 on wednesday but are up 13 since the start of the week the latest gyration in what has been a volatile first month of trading in a statement robinhood said “we don’t expect the reimbursement exemption to impact us significantly even if it were to be adopted by other regulators customers love our free stock program and we think it fits squarely into our mission to democratize finance for all” the issue may be having a particularly large impact on companies whose stock prices are relatively inexpensive on a pershare basis while robinhood says new users can receive free stocks worth up to 225 about 98 of customers get stocks worth between 250 and 10 stocks with low dollar values aren’t always small companies sirius xm holdings siri a 25 billion company trades at 634 but they often are catalyst which has a 560 million market cap trades for 560 marathon oil mro another company that has said it is seeing higher proxyrelated costs is worth 9 billion and trades for 1162 but was mostly trading under 10 last year its shareholder base increased by nearly 32 times in 2020 leading to proxy costs rising by 25 times even as the company was dealing with financial strains from the pandemic finra said that it was reviewing the sec’s decision but declined to comment further