Robinhood faces SEC investigation over crypto business

Robinhood Markets Inc., the firm behind the popular trading app, said today that it was subpoenaed by the Securities and Exchange Commission in December.

The company disclosed the investigation in its most recent 10-K filing with the SEC. In it, among the various disclosures of potential risks to the business, the company lists a subpoena from the SEC regarding Robinhood’s “backed cryptocurrencies, custody of cryptocurrencies and platform operations.”

Robinhood currently lists 18 cryptocurrencies on its trading platform, including Bitcoin, Ethereum and Dogecoin. Investors can buy as little as $1 to get started with digital assets.

A subpoena requires a person to appear before a court to testify or provide documentation when an investigation is active. Robinhood said it received similar subpoena requests from the California Attorney General’s office regarding the trading platform, custody of customer funds, customer disclosures and coin listing. It added that it is cooperating with California’s investigation.

“We have nothing more to share here beyond what’s on file,” a Robinhood spokesperson said Decrypt.

The company went through a period of “hyper growth” during the COVID-19 pandemic, thanks to low interest rates, stimulus checks and the simple app that allows retail investors to buy and sell both stocks and cryptocurrencies like Bitcoin.

The move by the SEC is the latest in a tough crackdown on the cryptocurrency industry following the collapse of digital asset mega-exchange FTX last year.

FTX crashed in November after the company admitted that it did not have one-to-one reserves of customer funds and could not honor withdrawals. Prosecutors allege the exchange, which allowed users to buy, sell and bet on the prices of a variety of cryptocurrencies, was criminally mismanaged.

The healthy ex-boss Sam Bankman-Fried, who was once perceived as the do-gooder of the crypto world, now faces 12 chargesincluding conspiracy to make illegal political contributions and defraud investors.

FTX’s collapse has forced regulators to move faster in policing a fast-moving and convoluted space in the name of protecting investors.

The SEC in particular is on the prowl: SEC Chairman Gary Gensler wants to crack down on all coins and tokens he believes are unregistered securities – and he’s made it clear that he believes essentially everything in the crypto market except Bitcoin fits that description.

In January, the Commission arrived hit Genesis and Gemini with fees for offering unregistered securities. And earlier this month, it fined US crypto exchange Kraken $30 million for violating securities laws.