Stay informed with free updates on Robinhood’s impending lawsuit from the SEC
Robinhood, the popular retail brokerage platform, is facing a potential lawsuit from the Securities and Exchange Commission (SEC) over its cryptocurrency business. The SEC has issued a Wells notice to Robinhood’s crypto unit, indicating a preliminary determination to recommend enforcement action against the company. This could result in civil litigation, monetary penalties, and limits on business activities.
The SEC has been cracking down on the cryptocurrency industry, arguing that many tokens should be regulated as securities. Robinhood, which boasts a customer base of over 23 million investors and $119 billion in assets under custody, offers commission-free trading of 15 cryptocurrencies in most US states. Cryptocurrencies accounted for $135 million of its $785 million in transaction-based revenues last year.
Despite making efforts to comply with SEC regulations, Robinhood has made tough decisions such as not listing certain tokens or providing certain products to avoid regulatory issues. The company’s chief legal officer, Dan Gallagher, expressed disappointment in the SEC’s decision to issue a Wells notice and emphasized that they believe the assets listed on their platform are not securities.
The SEC’s actions come amidst a broader crackdown on the digital assets industry, following the failure of FTX and legal actions against platforms like Coinbase, Binance, and Kraken. Analysts suggest that Robinhood may not have much incentive to settle the lawsuit, especially with the potential for changes in cryptocurrency enforcement policies with the expiration of SEC chair Gary Gensler’s term in two years.
Despite the regulatory challenges, Robinhood’s stock price remained stable on Monday and has seen a 47% increase since the beginning of 2024. The company is set to report its first-quarter financial results on Wednesday. Robinhood has previously paid significant sums to settle regulatory cases, including a $65 million settlement with the SEC in 2020 and over $70 million in penalties from industry regulator Finra in 2021.
The SEC’s warning to Robinhood underscores the regulatory uncertainties facing the cryptocurrency industry and the ongoing battle between regulators and market participants. Stay tuned for updates as this story develops.