SEC Warns Robinhood of Enforcement Action Over Crypto Business

The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. regarding its crypto business, signaling a potential enforcement action. This move by the regulator is part of its ongoing crackdown on digital assets, showing that it is not backing down in its efforts to regulate the crypto industry.

Robinhood, primarily known for its stock trading platform, disclosed on Monday that it had received a Wells notice from the SEC’s enforcement staff. This notice indicates that the regulator is considering recommending enforcement action against the company. In response to this news, Robinhood’s shares dropped more than 2% in premarket trading.

The company will have the opportunity to respond to the SEC’s allegations before any action is taken. Depending on Robinhood’s response, the SEC may choose to sue or settle with the company to resolve the probe. Robinhood’s chief legal officer, Dan Gallagher, expressed disappointment in the SEC’s move, stating that the company believes the assets listed on its platform are not securities.

Under the leadership of Chair Gary Gensler, the SEC has taken a firm stance on regulating digital assets, arguing that most tokens are subject to SEC rules. The agency has previously taken action against other prominent crypto brokerages and trading platforms, such as Coinbase Global Inc. Robinhood had previously disclosed that it received an investigative subpoena related to its cryptocurrency listings and custody.

To determine whether an asset falls under its securities rules, the SEC relies on a test established in a 1946 Supreme Court case. Crypto advocates argue that many digital assets do not meet this standard and call for revised rules that consider the unique characteristics of the asset class.

As the SEC’s enforcement action against Robinhood unfolds, the crypto industry will be closely watching the outcome and its potential implications for the broader regulatory landscape. Stay tuned for updates on this developing story.