Tech
SEC Crackdown on Cryptocurrencies Continues on Robinhood as Lawsuit Looms
Continuing its crackdown on cryptocurrency exchanges, the Securities and Exchange Commission (SEC) could potentially sue Robinhood Markets over alleged securities violations in the crypto unit of the popular investing app, Robinhood Crypto She said Monday.
In a recent SEC archivingJason Warnick, Chief Financial Officer of Robinhood Markets, confirmed that Robinhood Crypto has received investigative subpoenas from the SEC regarding “cryptocurrency listings, cryptocurrency custody, and platform operations.”
Although Robinhood cooperated with these investigations, the SEC sent a “Wells Notice” on Monday, the document said. The notice advised Robinhood that SEC staff had made a “preliminary determination” recommending that the SEC “file an enforcement action” alleging that Robinhood Crypto had violated the Securities Exchange Act of 1934.
If the SEC sues Robinhood, the SEC document states, it “could result in a civil injunctive action, a public administrative proceeding, and/or a cease-and-desist proceeding.” Potential remedies could include “an injunction, a cease-and-desist order, disgorgement, prepaid interest, civil monetary penalties, and censure, revocation, and limitations on activities.”
In a Press release, Dan Gallagher, chief legal, compliance and corporate affairs officer at Robinhood Markets, said Robinhood is “disappointed.” The SEC issued the Wells Notice “after years of “good faith attempts by the company to work with the SEC to obtain regulatory clarity” that ended last year without any resolution, he said.
In 2022, Robinhood announced that 2 million customers, all on the waiting list, had access to its crypto wallet. In that blog, CEO and co-founder Vlad Tenev told customers that Robinhood’s “goal” was to become “the most trusted and easiest to use crypto platform.”
Announcement
But achieving this would require more clarity from regulators, Robinhood found. Last June, Gallagher did it testified to Congress that a year and a half of challenging talks with the SEC have not helped Robinhood gain greater clarity on how to register its cryptocurrency trading activity. This has left Robinhood living in a “world of confusion around cryptocurrencies,” Robinhood said on its website in December 2023.
“The most fundamental problem in digital asset markets is that there is no clear guidance on what digital assets the SEC and the Commodity Futures Trading Commission deem to be securities and commodities, respectively, and how cryptocurrency platforms and digital asset securities can be appropriately registered under federal law,” Gallagher told Congress.
Robinhood is considered “more conservative than other U.S. cryptocurrency firms,” says the Wall Street Journal noticed. And Robinhood has apparently attempted to monitor SEC enforcement to ensure that its cryptocurrency business does not commit any known SEC violations.
Here’s why Robinhood removed cryptocurrencies reported by the SEC during a lawsuit against Coinbase, including Solana, Polygon and Cardano, The Verge reported. And it’s also why Robinhood prohibits cryptocurrency earnings from lending or staking, particularly because the SEC considers such products to be securities, Robinhood’s press release notes.
Likewise, Robinhood acts quickly to immediately offer SEC-approved cryptocurrencies on its platform. Robinhood’s press release and SEC filings did not clarify which crypto products the SEC might consider securities on its platform. Gallagher claims there are no stocks on Robinhood’s platform.
“We firmly believe that the assets listed on our platform are not securities,” Gallagher said.
Robinhood will now have the opportunity to plead its case to the SEC and potentially dodge the lawsuit. Meanwhile, the company assured customers in its blog that “this development will not impact your account or the services we provide,” declaring “Robinhood Crypto is here to stay.”
“We look forward to working with the SEC to clarify how weak any case against Robinhood Crypto would be on both the facts and the law,” Gallagher said.