Robinhood’s Crypto Business Under Fire from the SEC
Robinhood has disclosed that it received an investigative subpoena from the SEC in December 2022 requesting information about cryptocurrency listings, custody of cryptocurrencies and platform operations
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Robinhood, the popular trading app, has disclosed in its recent 10-K filing that it received an investigative subpoena from the Securities and Exchange Commission (SEC) in December 2022.
The subpoena requested information about Robinhood’s cryptocurrency listings, custody of cryptocurrencies and platform operations.
The lawsuit comes after a turbulent year in the cryptocurrency market, with several major trading venues and lending platforms filing for bankruptcy, including FTX and Three Arrows Capital. Robinhood’s share price was also affected in November 2022, falling by 18% on the day FTX stopped all non-fiat client withdrawals from the platform.
Robinhood’s policies and procedures are designed to assess the likelihood that a particular cryptocurrency can be considered a security under applicable laws. However, the company has stated that these assessments are not definitive legal decisions, leaving the company vulnerable to legal or regulatory action if a cryptocurrency backed by the platform is determined to be a security under US law.
If the SEC or a court determines that any cryptocurrencies supported by Robinhood’s platform are securities, the Company may be prevented from facilitating trading in those cryptocurrencies.
It remains to be seen how this subpoena will affect Robinhood’s cryptocurrency business, but it serves as a reminder of the regulatory risks involved in the fast-moving and evolving crypto market.
This is far from the company’s first run-in with the formidable regulator. In late 2020, the SEC accused Robinhood Financial of repeatedly making false statements and failing to disclose receipt of payments from trading firms for routing client orders to them. The SEC alleges that Robinhood misled customers between 2015 and late 2018 in communications about its largest source of income. Robinhood agreed to pay $65 million to settle the allegations without admitting or denying the SEC’s findings.
After cashing in on the Dogecoin craze in 2021, Robinhood significantly expanded the list of available cryptocurrencies on its platforms.
