Famous brokerage Robinhood must now pay a multi-million dollar fine and is prevented from blocking customer withdrawals.
Robinhood brokerage app
As published by the US justice system last Wednesday (4), the cryptocurrency broker Robinhood reached an agreement after blocking withdrawals of bitcoin and cryptocurrencies from investors, and is ordered to pay a fine of US$ 3.9 million.
Although the agreement was ready since the end of August 2024, it was only now in September that it was officially published. Celebrated by California Attorney General Rob Bonta, he points out that it is the first case that the courts have closed with a cryptocurrency brokerage.
Robinhood Crypto acted disrespectfully towards its customers between 2018 and 2022, when it suspended cryptocurrency withdrawals. Now, it has pledged to never suspend its operations to investors again in the future.
Cryptocurrency broker Robinhood agrees to never again suspend customer bitcoin withdrawals, faces multi-million dollar fine
In a document that Livecoins obtained access to and published by the California Department of Justice in the US, everything indicates that Robinhood will have to pay R$21.92 million in fines.
“While cryptocurrency is relatively new, California has strong and long-standing consumer protection laws that protect Californians from misrepresentation, including by cryptocurrency companies,” said Attorney General Bonta. “Our investigation and settlement with Robinhood should send a strong message: whether you are a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws. I am dedicated to using every tool available to my office to protect California consumers as technology advances in the marketplace.”
The California Department of Justice’s investigation found that Robinhood sold commodity contracts in violation of the CCL by allowing customers, who expected their investment to become more valuable soon, to purchase cryptocurrencies without actually delivering those assets to customers. Customers were then unable to withdraw their cryptocurrencies and were forced to sell them back to Robinhood to exit the trading platform.
According to a statement from the Californian court, cases like this should not occur in the future and investors should report them.
Robinhood has pledged to never block withdrawals again
According to the prosecutor, Robinhood misled customers by advertising that it would connect to multiple trading venues, which it said were intended to ensure that customers received the most competitive prices on the market, which was not always the case.
Additionally, Robinhood also told its customers that the brokerage itself held all of its customers’ cryptocurrencies purchased through the platform. Despite these assurances, Robinhood failed to tell customers that there were instances where it left custody of cryptocurrencies with third parties for extended periods.
In addition to the $3.9 million fine, according to the agreement, Robinhood must comply with three other measures:
Allow customers to withdraw their bitcoin and cryptocurrencies from Robinhood to their own wallets.
Ensure that its written representations to clients about its trading and order handling practices are materially in accordance with such practices, including routing of orders to trading venues and cryptocurrency buy and sell prices.
Make it clear to customers that Robinhood will hold custody of the cryptocurrencies they own, update its Customer Agreement to inform that it may delay settlement with trading venues in the event of an incident that raises concerns about the network security of a cryptocurrency asset, and report to our office any incident that results in delayed settlement for more than one week.
Brokerage at the center of the 2021 WallStreetBets scandal
In 2021, small investors challenged Wall Street in a movement to buy unknown stocks, coordinated by Reddit in the group WallStreetBets.
Most of the purchases were made on Robinhood, a brokerage that, in addition to listing cryptocurrencies, also lists stocks from US stock exchanges. Among the stocks that soared was GameStop, which appreciated tremendously in just a few days on the stock exchange.
However, many investors ended up banned or suspended by the brokerage after the case came to light, with many blaming Robinhood for siding with the banks. The brokerage, however, claimed it was taking precautions against market manipulation.
In any case, three years later, the US court reached an agreement prohibiting Robinhood from blocking cryptocurrency withdrawals.
