Robinhood Markets, the popular retail trading platform, disclosed on Monday that its cryptocurrency arm, Robinhood Crypto, received a Wells notice from the U.S. Securities and Exchange Commission (SEC) on May 4, 2024.
TLDR
Robinhood Crypto received a Wells notice from the SEC on May 4, 2024, indicating a potential enforcement action related to alleged violations of securities broker and transfer agent regulations.
The SEC staff made a preliminary determination to recommend an enforcement action against Robinhood Crypto.
Robinhood firmly believes that the assets listed on its platform are not securities and plans to engage with the SEC to make its case.
The potential action from the SEC may include civil injunctive action, public administrative proceedings, and/or a cease-and-desist order, along with various remedies.
Robinhood previously ended support for Cardano (ADA), Polygon (MATIC), and Solana (SOL) on June 27, following SEC lawsuits against Binance and Coinbase that named these tokens as securities.
The notice indicates that the SEC staff has made a preliminary determination to recommend an enforcement action against Robinhood Crypto, alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, which pertain to registration as a securities broker and transfer agent.
The potential enforcement action comes amidst a broader crackdown by the SEC on the cryptocurrency industry. The regulator has taken a firm stance, arguing that most cryptocurrency tokens are securities and subject to its registration rules. This position has been met with opposition from crypto firms, who accuse the SEC of overreach.
Over the last three years, we’ve reached a state of regulatory onslaught that is harmful to American companies and consumers. The SEC’s continued attack on crypto, coupled with recent rule proposals like the one related to predictive data analytics, mark yet another improper…
— Vlad Tenev (@vladtenev) May 6, 2024
In response to the Wells notice, Robinhood’s Chief Legal, Compliance, and Corporate Affairs Officer, Dan Gallagher, expressed disappointment, stating that the company had made “good faith attempts” to work with the SEC for regulatory clarity.
Gallagher, a former SEC commissioner himself, firmly believes that the assets listed on Robinhood’s platform are not securities and looks forward to engaging with the SEC to make their case.
The potential action from the SEC could have significant consequences for Robinhood Crypto. It may include a civil injunctive action, public administrative proceeding, and/or a cease-and-desist order.
The remedies sought by the SEC could encompass an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, as well as revocation and limitations on activities.
This development comes on the heels of similar actions taken by the SEC against other prominent players in the cryptocurrency space.
In June 2023, the agency filed lawsuits against Coinbase and Binance, the two largest cryptocurrency exchanges, alleging that they were operating unregistered exchanges by allowing the sale of certain crypto tokens the SEC considers to be investment securities.
In response to these lawsuits, Robinhood took preemptive measures and ended support for Cardano (ADA), Polygon (MATIC), and Solana (SOL) on June 27, 2023. These three tokens were specifically named as securities in the SEC’s lawsuits against Binance and Coinbase.
Despite the legal challenges, Robinhood’s stock price showed resilience, closing up nearly 2% on Monday after paring earlier losses.
Mizuho analyst Dan Dolev noted that the concerns regarding the Wells notice might be overblown, given that Robinhood earns a relatively small portion of its total revenue from crypto trading compared to more crypto-focused firms. In the fourth quarter of 2023, only 9.13% of Robinhood’s total net revenue came from crypto-related transaction fees.
The company has expressed its willingness to contest the matter in court if necessary, setting the stage for another legal battle between a crypto firm and the anti-crypto SEC.
The post SEC Strikes Again! Robinhood Crypto Receives SEC Wells Notice This Time appeared first on Blockonomi.
