PYMNTS MonitorEdge May 2024

Robinhood Crypto Target of Potential SEC Enforcement

Robinhood

Robinhood’s cryptocurrency business could become the target of regulatory action.

The trading platform said Monday (May 6) that it received a Wells Notice from the U.S. Securities and Exchange Commission (SEC) staff indicating they will recommend that the commission take enforcement action against the company.

“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,” Dan Gallagher, the company’s chief legal, compliance and corporate affairs officer, said in a blog post.

“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.”

According to the blog post, Robinhood Crypto says it has made “difficult choices not to list certain tokens or provide products, such as lending and staking, that the SEC previously alleged are securities in public actions against other platforms.”

The company also says it has “heeded the SEC’s calls” and tried to register a special purpose broker-dealer with the regulator. Robinhood says the Wells Notice will not affect customers’ accounts or its services.

A spokesperson for the SEC told PYMNTS the commission does not comment on “the existence or nonexistence of a possible investigation.”

The SEC last year filed a Wells Notice against Coinbase — at the time the second crypto company to receive such a notice — months before suing the platform for securities violations.

Coinbase has sought to have that case dismissed, though a federal judge ruled in March that the SEC has grounds to take it to trial.

The last year has seen a range of enforcement actions against crypto firms, including Coinbase, Binance and Kraken. At an event last month, the compliance chiefs of each firm — all of which reached settlements with regulators — discussed the lessons they learned from the experience.

For example, Valerie-Leila Jaber, Coinbase’s global head of financial crime compliance, said the company’s compliance team has worked with its technology teams to bolster its ability to respond quickly to compliance-related alerts as its transaction volume is increasing.