Robinhood Markets Inc. has become the next crypto trading platform to receive a threat of legal action from the Securities and Exchange Commission (SEC), adding to the sizable list of industry giants on the agencyâs hit list.
In a Form 8-K filed on Saturday, the company said it received a Wells Notice from the SEC on May 4.
Allegations Against Robinhood
Specifically, SEC staff disclosed that theyâd reached a âpreliminary determinationâ to recommend the agency to file a lawsuit âalleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934.â
Per the SECâs website, Section 15(a) makes it unlawful for broker-dealers to effect or induce the purchase or sale of securities unless that broker is registered with the SEC. Meanwhile, Section 17A pertains to defrauding customers of their money through material misstatements or omissions.
Remedies may include âan injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities,â the filing stated.
Robinhood wrote on Monday that it was âdisappointedâ with the SECâs decision after âyears of good faith attemptsâ to comply and register.
âWe 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,â said Dan Gallagher, Chief Legal, Compliance and Corporate Affairs Officer of Robinhood.
Robinhoodâs stock, HOOD, remained relatively unaffected on Monday, trading 1.14% above Fridayâs close at $18.16.
The SECâs Next Crypto Target
Robinhood first received an investigative subpoena from the SEC in February 2023 related to its crypto operations.
In June, the exchange delisted popular crypto assets including Cardano (ADA), Solana (SOL) and Polygon (MATIC) from its platform after the SEC pressed similar charges against Binance and Coinbase asserting that those assets were unregistered securities.
Kraken was also charged for listing securities on its platform in November, despite electing to pay a $30 million fine for alleged securities violations related to its staking service earlier that year.
This time, Kraken and others have chosen to fight back against the SEC in court, joining a chorus of other firms claiming the digital assets on their platforms do not qualify as investment contracts.
Beyond centralized trading platforms, the SEC also threatened to sue decentralized exchange developer Uniswap Labs in April and is now battling Ethereum infrastructure provider Consensys over Ether (ETH)âs status as a security.
âIt seems like theyâre abusing the Wells process as a scare tactic now,â wrote Jake Chervinsky, Chief Legal Officer at crypto VC firm Variant Fund, to Twitter on Monday.
âThe SEC allocates a grossly disproportionate amount of its resources to crypto, given that its actual purpose is to regulate equity and debt markets,â he added. âEvery minute and taxpayer dollar spent on crypto is one not spent on the real mission that Congress created the SEC to pursue.â
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