- Robinhood Markets Inc. is the latest crypto trading platform to receive a threat of legal action from the Securities and Exchange Commission (SEC).
- The company disclosed in a Form 8-K that it received a Wells Notice from the SEC on May 4.
- The SEC staff has reached a “preliminary determination” to recommend the agency to file a lawsuit against Robinhood for alleged violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934.
Robinhood Markets Inc. faces potential legal action from the SEC, adding to the growing list of crypto trading platforms under scrutiny. The SEC staff has made a preliminary determination to recommend filing a lawsuit against Robinhood for alleged violations of the Securities Exchange Act of 1934.
Allegations Against Robinhood
The SEC staff disclosed that they’d reached a “preliminary determination” to recommend the agency to file a lawsuit “alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934.” Section 15(a) makes it unlawful for broker-dealers to effect or induce the purchase or sale of securities unless that broker is registered with the SEC. Meanwhile, Section 17A pertains to defrauding customers of their money through material misstatements or omissions. Remedies may include “an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities,” the filing stated.
Robinhood’s Response
Robinhood expressed disappointment with the SEC’s decision after “years of good faith attempts” to comply and register. The company firmly believes that the assets listed on its platform are not securities and looks forward to engaging with the SEC to clarify this. Despite the news, Robinhood’s stock, HOOD, remained relatively unaffected on Monday, trading 1.14% above Friday’s close at $18.16.
The SEC’s Next Crypto Target
Robinhood first received an investigative subpoena from the SEC in February 2023 related to its crypto operations. In June, the exchange delisted popular crypto assets including Cardano (ADA), Solana (SOL) and Polygon (MATIC) from its platform after the SEC pressed similar charges against Binance and Coinbase asserting that those assets were unregistered securities. Kraken was also charged for listing securities on its platform in November, despite electing to pay a $30 million fine for alleged securities violations related to its staking service earlier that year.
Conclusion
As the SEC continues to scrutinize crypto trading platforms, Robinhood is the latest to face potential legal action. The company maintains that the assets listed on its platform are not securities and plans to engage with the SEC to clarify this. Despite the threat of legal action, Robinhood’s stock remained relatively unaffected. The ongoing scrutiny of crypto trading platforms by the SEC underscores the regulatory challenges facing the crypto industry.
