Robinhood braces for SEC charges over crypto trading
FILE - An electronic screen at Nasdaq displays Robinhood in New York's Times Square following the company's IPO, July 29, 2021. Robinhood Markets said Tuesday, Aug. 2, 2022, that it's cutting nearly a quarter of its workforce, as crashing cryptocurrency prices and a turbulent stock market keep more customers off its trading app. (AP Photo/Mark Lennihan, File)
The online trading platform Robinhood is bracing for a potential lawsuit or administrative order from the Securities and Exchange Commission (SEC) over its cryptocurrency offerings.
In a recent regulatory filing, the platform revealed that Robinhood Crypto, its digital currency trading operation, received a “Wells Notice” from the SEC — a formal warning of a pending enforcement action.
“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business,” said Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer.
Gallagher also served as an SEC commissioner from 2011 to 2015.
“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law,” Gallagher said.
Robinhood said in a statement it made “difficult choices not to list certain tokens or provide products … that the SEC previously alleged are securities,” and it “heeded the SEC’s calls and attempted to register a special purpose broker-dealer with the agency.”
A Wells Notice informs a company regulated by the SEC that the agency’s staff will recommend the commission issue an enforcement action. Such actions could be a civil lawsuit or cease and desist orders.
The Robinhood notice is the latest flashpoint in a long-running battle between the SEC and the cryptocurrency industry under SEC Chair Gary Gensler, a Democrat appointed by President Biden in 2021.
Gensler has been fiercely critical of the burgeoning crypto industry and the explosion of investment products that either include or are tied to digital currencies. Under Gensler, the SEC has taken aggressive action to crack down on crypto investment products that they argue run afoul of federal financial regulations.
Crypto companies, however, argue the SEC has refused to issue clear guidelines for the industry while punishing firms that have come to the agency for help understanding the law.