Robinhood Fined $3.9 Million Over Crypto Withdrawal Restrictions in California

California Attorney General Rob Bonta has announced a $3.9 million settlement with Robinhood Crypto for restricting cryptocurrency withdrawals and not fully disclosing trading practices. The settlement marks the first public action by California’s Department of Justice against a cryptocurrency firm. As part of the settlement, Robinhood must allow customers to withdraw cryptocurrencies to their own wallets and increase transparency in customer agreements.

California Reaches $3.9 Million Settlement With Robinhood Crypto

California Attorney General Rob Bonta announced on Wednesday a $3.9 million settlement with cryptocurrency trading platform Robinhood Crypto LLC “for failing to allow customers to withdraw their cryptocurrency from their Robinhood accounts from 2018 to 2022, and for failing to fully disclose aspects of its trading and order handling arrangements.”

The settlement represents the first public action by the California Department of Justice (DOJ) against a cryptocurrency company. The action follows an investigation prompted by consumer complaints about questionable industry practices. According to Attorney General Bonta:

The settlement resolves the investigation into Robinhood’s violation of the California Commodities Law (CCL) and includes a $3.9 million penalty and strong conduct requirements.

Robinhood, known for its platform that facilitates the trading of digital currencies such as bitcoin, faced accusations of misleading customers about its business practices. The investigation by the California DOJ concluded that Robinhood “sold commodities contracts in violation of the CCL by allowing customers, who hoped their investment would become more valuable shortly, to buy cryptocurrencies without actually delivering these assets to customers,” the announcement details. “During that period, customers could not withdraw their cryptocurrency and were forced to sell it back to Robinhood to exit the trading platform.”

The DOJ investigation further revealed:

Robinhood misled customers by advertising it would connect to multiple trading venues, to ensure customers receive the most competitive prices between the venues, which was not always true.

Furthermore, Robinhood allegedly misrepresented that it held all its customers’ cryptocurrencies, though it sometimes arranged for third-party trading venues to hold these assets without full disclosure. As part of the settlement, Robinhood must now permit customers to withdraw their cryptocurrencies from Robinhood to their own wallets and ensure greater transparency in its customer agreements.

What are your thoughts on California’s settlement with Robinhood Crypto? Let us know in the comments section below. wt