Under pressure from the U.S. Securities and Exchange Commission, Robinhood has taken steps to ensure its crypto division isn’t violating securities law. The trading platform recently delisted several tokens, including Polygon, Cardano, and Solana, in response to the government agency’s litigation against other crypto exchanges.
However, these actions weren’t enough to assuage the SEC. Despite the company asserting it made years of “good-faith attempts” to cooperate with the government agency, Robinhood announced it recently received a Wells Notice from the SEC. The notice serves as a preliminary indicator that the agency has gathered enough information to bring an enforcement action against Robinhood and is likely to do so.
The crux of the complaint is the contention that certain digital tokens should be considered securities instead of currencies, an allegation Robinhood has denied.
“We 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,” wrote Dan Gallagher, Robinhood’s Chief Legal, Compliance and Corporate Affairs Officer, in response to the notice.
Heavy Scrutiny
Crypto exchanges have come under heavy scrutiny from government agencies. The SEC sued Binance and its founder, Changpeng Zhao, on similar securities violations. That lawsuit was one of many legal actions against the company, the latest of which resulted in four months of prison time for Zhao.
The SEC also gained ground in a suit against Coinbase, alleging the crypto exchange engaged in the unregistered selling of securities. The Coinbase and Binance lawsuits spurred Robinhood to make a last-ditch attempt to register with the SEC as a special-purpose broker for digital assets, but this effort proved unsuccessful.
Just Noise
Robinhood is a popular trading platform that boasted 10.9 million monthly active users by the end of 2023. Initially focused on stocks, the company branched out to include a crypto wallet in 2022. While Robinhood has worked hard to avoid government action, the SEC’s efforts may not have a drastic long-term impact on the company.
“The industry will keep experiencing these gut-punches until a regulatory framework is established, but it will survive.” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “In the end, a lot of these notices are just noise. It’s important to remember the bigger picture and consider what is being built behind the scenes.”
After an initial plunge on news of the SEC notice, Robinhood shares are up around 1%.
