Robinhood Crypto, a subsidiary of Robinhood Markets, has reached a $3.9 million settlement with California Attorney General, Rob Bonta, according to a recent press release published by the State of California Department of Justice.
According to the settlement, Robinhood must continue to allow customers to withdraw their cryptocurrencies and update its disclosures about custody practices.
The settlement resolved an investigation into Robinhood’s past practices related to cryptocurrency withdrawals. The firm previously implemented a policy that restricted customers from withdrawing cryptocurrencies directly from the app, meaning users could only buy and sell cryptocurrencies within the Robinhood platform.
A New Market
The practice was deemed in violation of California’s consumer and investor protection laws, which treat cryptocurrencies as commodities. The firm agreed to pay a $3.9 million penalty to settle with the California Attorney.
In addition, under the settlement, Robinhood must continue to allow customers to withdraw their cryptocurrencies and update its disclosures regarding its custody practices.
Speaking of the settlement, Attorney General Bonta pointed to California’s robust consumer protection laws, which are designed to safeguard consumers from deceptive or misleading practices. These laws apply to all businesses, including companies in cryptocurrency, a relatively new industry.
The investigation and settlement with Robinhood are a clear warning to cryptocurrency companies and other businesses that they must comply with California’s consumer and investor protection laws.
“Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws. I am dedicated to using all the tools available to my office to protect California consumers in the face of advancing technology in the marketplace,” Attorney General Bonta stated.
Robinhood has now enabled users to withdraw their crypto holdings, provided they complete certain verification steps, including identity verification and enabling two-factor authentication.
Ongoing Regulatory Pressures
Robinhood Crypto is currently facing separate investigations by the U.S. Securities and Exchange Commission (SEC). In May this year, the firm said it received a Wells Notice from the SEC, indicating the agency’s intent to pursue enforcement action against the firm.
The scrutiny reportedly focuses on Robinhood Crypto’s potential violations of securities laws, a common aspect in most of the SEC’s lawsuits against cryptocurrency companies. The SEC currently sues Coinbase, Kraken, Consensys, and Uniswap Labs for alleged securities token listings without proper registration.
Responding to the SEC’s potential enforcement action, Dan Gallagher, Robinhood’s Chief Legal Officer, said he was disappointed. He asserted that the assets listed on its platform do not constitute securities.
Robinhood intends to engage with the SEC to challenge the allegations and demonstrate the weaknesses in the case against its crypto operations. As of now, there has been no official statement from the SEC or Robinhood related to the case updates.
It’s not the first legal encounter between the firm and the securities regulator. In 2020, Robinhood Financial reached a $65 million settlement with the SEC over alleged misleading customers about its revenue sources and execution quality. The firm did not admit or deny the SEC’s findings.
The SEC’s actions could lead to various outcomes, including civil injunctions, cease-and-desist orders, and monetary penalties. The agency has recently reached a number of settlements with crypto-related businesses over their past actions.
Earlier this week, Galois Capital, a formerly known crypto-focused advisory firm, was fined $225,000 for violations related to the safeguarding of client assets. The SEC stated that the company failed to comply with regulatory requirements under the Investment Advisers Act, including not using qualified custodians to safeguard client assets.
Galois Capital held some of its assets on platforms like the now-bankrupt FTX, which were not recognized as qualified custodians.
Last month, the SEC also charged Abra, also known as Plutus Lending, for offering unregistered crypto securities through its Abra Earn product. The firm allegedly collected nearly $600 million in crypto assets, with $500 million from US customers.
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