Robinhood is the latest company to draw the ire of the US Securities and Exchange Commission (SEC). This weekend, he reported having received a Well warning – an announcement that the securities watchdog is building a case and intends to file a lawsuit. In an 8-K filing, the fintech company revealed that it received the letter from the SEC’s enforcement division for alleged securities violations.

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At this point, it’s hard to be surprised by the SEC’s anti-cryptocurrency actions — shameful as they may be. Apparently, the agency sent the notice after Robinhood cooperated with the SEC’s investigative subpoenas regarding its crypto operations. A Wells warning is essentially the last chance the defendant has to convince regulators that he did not violate the law, which would be a sign of good faith, except that the majority These letters end up in a lawsuit.

As Dan Gallagher, legal, compliance and corporate lead at Robinhood noted in a statement, the company has been in direct communication with the SEC about its crypto offerings for years, which is exactly what you would expect from a company that really only dabbles in crypto. It is unclear from the letter which tokens are considered securities by the SEC, although it is worth noting that the exchange has proactively delisted a number of tokens – including Solana (SUN)Polygon (MATIC) and Cardano (ADA) — in response to previous SEC lawsuits against rival trading companies.

“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear how weak any case against Robinhood Crypto would be, both on the facts and in law,” said Gallagher. He noted in particular the company’s “years of good faith attempts to work with the SEC to achieve regulatory clarity” and, like other crypto companies in legal limbo, “the well-known attempt to ‘go in and register’.”

Furthermore, in responding to “the SEC’s calls,” Robinhood attempted to register as a special-purpose broker with the agency. Although there are many licensed crypto companies, so far Prometheum Ember Capitala trading company that does not yet offer any assets for trading, is essentially the only one to receive a special purpose broker-dealer license, which was introduced in 2020 to allow companies to custody and trade “crypto asset securities”.

Although it’s just speculation, I have a feeling that the SEC began building a case right around the time that Gallagher, himself a former SEC commissioner and securities law expert, testified before Congress that the SPBD lawsuit is irrevocably broken and a profound waste of resources. To know:

“When 2021 SEC Chairman Gensler said, ‘Come in and register,’ we did,” Gallagher said at a House Agriculture Committee crypto hearing in June 2023. “We went through a 16-month process with the SEC staff trying to register [as] a special purpose broker. And then we were summarily informed in March that this process was over and that we would not see any fruit from this effort.”

So, to summarize, the SEC has announced intentions to sue a company for failing to register a license after apparently denying the company that very license (although, to be precise, SPBD licenses are ceded by the self-regulatory organization FINRA).

This fits a long pattern. Since taking office in 2021, SEC Chairman Gary Gensler has taken control of the crypto industry, which he says is his responsibility (a debatable claim). These efforts increased dramatically in the wake of FTX’s collapse, which was particularly embarrassing for US regulators given Sam Bankman-Fried’s sympathy with them.

The SEC now spends a disproportionate amount of time and money pursuing legal challenges against crypto companies, large and small. The agency presented at least one process per month since last November against a crypto company, most of which go unnoticed and typically end in a settlement.

“The SEC just sent a Wells notice to Robinhood. The number they have submitted about crypto in recent months is surprising. It’s hard to imagine they would (or could) initiate so many enforcement actions at the same time,” said Variant Fund legal lead Jake Chervinsky on X. “It seems like they’re abusing the Wells process as a scare tactic now.” .

In a sense, these lawsuits – especially those filed against big companies like Coinbase and Robinhood – are an attempt to signal that crypto is essentially illegal. This is not directly the fault of the SEC, but also the fact that Congress has slept on regulating crypto for over a decade and is now hampered by partisan gridlock.

“I do not know why [the SEC] they did what they did. But there’s no going back on the rules now,” Beau J. Baumann, PhD, candidate at Yale Law School and co-author of an influential crypto law paper, told CoinDesk in an interview. “In this sense, everything is bad faith. If enforcement actions are illegal, writing a rule is much more obvious.”

“Congress should pass new legislation to avoid legal pitfalls, but it’s not clear to me that it actually will,” Baumann added. Gensler, for his part, has stated directly that he does not think crypto needs bespoke legislation or guidance, given his view that everything crypto, except bitcoin, walks and talks like securities.

While the SEC has had legal victories, it has also suffered many legal losses. It remains to be seen whether Robinhood will actually be sued, and if so, whether it will follow the path of Coinbase and Consensys and mount its own offensive legal campaign.

If there’s a silver lining here, it’s that after years of trying to eat all the crypto pie, Gensler’s SEC may have bitten off more than it could chew. Robinhood shares fell today in premarket trading but have since recovered, an indication in part that the market doesn’t take this stock seriously, at least in material terms.

After all, even if the SEC wins, it’s hard to imagine the tangible benefits of stopping people from trading stellar lumens. (XLM) or dogecoin (DOGE).

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