Major Crypto Exchange Receives SEC Wells Notice, Triggering Stock Plunge: Latest Developments

• The Securities and Exchange Commission (SEC) has issued a Wells Notice to Robinhood Crypto LLC, the cryptocurrency arm of commission-free stock and crypto trading platform Robinhood Markets.
• The Wells Notice indicates the regulator’s intention to bring an enforcement action against Robinhood’s crypto operations for alleged violations of securities laws.
• Disputed issues include cryptocurrency listings, crypto custody, and platform operations.

Robinhood’s crypto operations face potential enforcement action from the SEC, following allegations of securities law violations. The issues in question include cryptocurrency listings, crypto custody, and platform operations.

Robinhood’s Crypto Operations Receive Wells Notice

As reported by CoinOtag, Robinhood Crypto LLC received a Wells Notice from the staff of the U.S. Securities and Exchange Commission (SEC) last week. The disputed issues include cryptocurrency listings, crypto custody, and platform operations. The SEC has made a “preliminary determination” to recommend an enforcement action against Robinhood Crypto for alleged violations of Sections 15(a) and 17A of the Securities Exchange Act.

Potential Enforcement Actions

According to Bloomberg, the potential action could include a civil injunctive action, a public administrative proceeding, and/or a cease and desist proceeding. The remedies sought could include an injunction, a cease and desist order, disgorgement, prejudgment interest, civil money penalties, and censures, suspensions, and limitations on activities.

Robinhood’s Response to the SEC

Dan Gallagher, Director of Legal, Compliance, and Corporate Relations at Robinhood Markets, responded to the Wells Notice, stating, “We are disappointed that the SEC has decided to issue a Wells Notice regarding our U.S. crypto business, including our ‘come and register’ initiative, after years of good faith efforts with the SEC.” Robinhood Markets believes that the assets listed on its platform are not securities and that the SEC has a weak case both in terms of facts and laws.

Conclusion

Following the announcement of the Wells Notice on May 4, Robinhood Markets (HOOD) shares fell 7% in pre-market trading on Monday. The HOOD price is currently trading at $17.57, recording a slight drop. This is not the first time Robinhood has faced scrutiny from U.S. regulators, having previously received court subpoenas from authorities, including the California Attorney General, seeking information about coin listings, customer asset custody, and more.