SEC Warns Robinhood That Its Crypto Business Faces Lawsuit

(Bloomberg) — The U.S. Securities and Exchange Commission warned Robinhood Markets Inc. that it faces enforcement action related to its crypto business; This is the latest sign that the regulator is not giving up its years-long crackdown on digital assets.

Most Read from Bloomberg

Robinhood, known for stock trading, said Monday that the SEC’s enforcement staff sent the firm a Wells notice, making it the company’s first determination to recommend enforcement action. The company’s shares rose as much as 2.8% in New York.

The company will have the opportunity to respond to the SEC’s allegations before taking any regulatory action. Sometimes the answer convinces the SEC to back down. Otherwise, the regulator could sue or settle with Robinhood to resolve the investigation.

Dan Gallagher, Robinhood’s chief legal officer, said in a statement that the firm was disappointed by the move and that company officials “firmly believe that the assets listed on our platform are not securities.” The SEC declined to comment.

The SEC, led by Chairman Gary Gensler, has argued that most tokens are subject to SEC rules and that the platforms on which they trade must be registered with the agency. SEC, Coinbase Global Inc. It has filed lawsuits against other high-profile crypto brokerages and trading platforms, including.

To decide whether an asset falls within the securities rules, the SEC relies on a test laid out in a 1946 Supreme Court case. Crypto advocates say many digital assets do not meet this standard and that the SEC should introduce revised rules to take into account the unique characteristics of the asset class.

Robinhood previously said it had received an investigative subpoena regarding cryptocurrency listings and custody, among other matters. Although the company has stopped offering some tokens, it still offers more than a dozen tokens, including Bitcoin, Ether, Litecoin, Aave, and Chainlink, according to its website.

Read More: SEC Subpoenas Robinhood Over Brokerage’s Crypto Business

Even as customer interest has waned, digital assets remain an important part of Robinhood’s trading business. Crypto as a share of Robinhood’s trading-based revenue has been declining since its pandemic-era boom. Cryptocurrencies accounted for less than a fifth of Robinhood’s transaction-based revenue last year, compared to nearly a third in 2021.

The story continues

–With help from Annie Massa.

(Update with share price in second paragraph.)

Most Read from Bloomberg Businessweek

©2024 Bloomberg LP