SEC eyes Robinhood crypto for possible securities violations. Platform says assets aren’t securities and plans to fight potential enforcement action.
This past weekend, Robinhood reportedly received a Wells Notice from the United States Securities and Exchange Commission (SEC) as part of the federal agency’s crackdown on cryptocurrency regulation. This landed the digital asset trading platform in hot water with the SEC.
“On May 4, 2024, RHC received a “Wells Notice” from the SEC staff (the “Staff”) regarding its cryptocurrency operations. The filing stated that the Staff had informed RHC of its “preliminary determination” to recommend that the SEC initiate enforcement proceedings against RHC, alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, as amended. Robinhood stated in a court filing on Monday.
An SEC Wells Notice, which serves as a warning to a specified entity that the federal regulator has probable cause to initiate enforcement proceedings, can cause significant legal complications for businesses operating in the cryptocurrency industry.
Court documents indicate that the Silicon Valley-based cryptocurrency company has previously been served with several “investigative subpoenas” by the U.S. regulator and the Wells Notice. These subpoenas pertained to the platform operation, cryptocurrency listings, and cryptocurrency custody of the company.
“We are disheartened that the agency has decided to issue a Wells Notice regarding our U.S. crypto business,” said Dan Gallagher, chief legal compliance officer of Robinhood.
“We have worked with the SEC for years in good faith to achieve regulatory clarity, including our well-known attempt to ‘come in and register.'” “We strongly believe that the assets featured on our platform do not qualify as securities. We eagerly anticipate discussing this matter with the SEC to demonstrate the legal and factual emptiness of any potential lawsuit against Robinhood Crypto.”
The SEC Strict Cryptocurrency Regulation
After the news, investors were alarmed when Robinhood’s stock dropped more than 5 percent.
The announcement of its regulatory discipline coincides with Robinhood’s first-quarter results, which were released on Wednesday, a pivotal moment for the company.
Gary Gensler’s controversial chairmanship of the SEC has previously drawn criticism for the agency’s enforcement-based approach to regulating digital assets.
The commission issued A Wells Notice against Consensys last month, alleging that the company operated as an unregistered securities broker via MetaMask, an application designed for Ethereum.
The reason the SEC notified Robinhood of a potential enforcement action is unknown; however, the cryptocurrency company’s most recent court filing indicates that the action could consist of “civil injunctive action, public administrative proceeding, and cease-and-desist proceeding.”
The latest in a series of Wells Notices issued to companies operating in the cryptocurrency industry, the SEC’s warning to Robinhood may indicate a regulatory crackdown on digital assets in the coming months.