Robinhood was fined $3.9 million for blocking crypto withdrawals and misrepresenting trade practices from 2018-2022.
Robinhood misled customers about trade routing and failed to disclose third-party custody of crypto assets, violating California Commodities Law.
The settlement requires Robinhood to allow crypto withdrawals and improve transparency on trading practices and asset custody.
California Attorney General Rob Bonta, announced a settlement of $3.9 million with the cryptocurrency trading platform Robinhood Crypto, LLC. In this settlement, the platform is accused of violating multiple consumer protection laws
Notably, one of the violations was preventing users from withdrawing their cryptocurrency holdings from 2018 to 2022. The investigation found that Robinhood had violated the California Commodities Law (CCL) by misrepresenting its trading practices.
https://twitter.com/AGRobBonta/status/1831439508304507211 Misrepresentation and Customer Restrictions
The main problem was that Robinhood did not permit users to take their cryptocurrency during the time frame specified. Rather, to leave the platform, users had to sell their assets back to it. Many customers could no longer fully control their investments as a result of this practice.
Furthermore, Robinhood misrepresented to its clients how it managed order routing and trades while claiming to be able to connect to several venues in order to get affordable prices. Investigations, though, showed that this wasn't always the case.
Investigation Unveils Non-Disclosure of Key Information
Additionally, Robinhood failed to adequately notify its users of the fact that third-party locations frequently retained client assets for lengthy periods of time. Customer complaints served as the impetus for the California Department of Justice's investigation.
Notably, it was discovered that the platform had sold contracts for commodities in violation of the CCL. Consumers were misled into thinking they had complete ownership of the cryptocurrencies when, in fact, they were not in charge of them directly.
Furthermore, the reputation of Robinhood was further damaged by its omission of crucial details like custody agreements and price-setting procedures. Due to the discrepancy between the company's stated policies and its actual behavior, regulatory agencies became aware of these actions.
Settlement Details and Future Implications
Consequently, Robinhood mustomers must now be able to withdraw their cryptocurrency holdings in accordance with the settlement's terms. Additionally, the business must match its written statements to its real trading procedures. This entails being open and honest about the location and mode of execution of trades as well as the management of client assets.
Therefore, Robinhood needs to revise its customer agreements to make sure that any possible hold-ups in the settlement process especially when network security is an issue are made explicit. The purpose of this action is to increase openness and stop such problems from happening again.
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