Robinhood Markets is under fire once again, this time over its cryptocurrency listings and operations. The US Securities and Exchange Commission (SEC) issued an investigative subpoena to Robinhood regarding its crypto activities, specifically its supported cryptocurrencies, custody of cryptocurrencies, and platform operations. The company disclosed the investigation in its latest 10-K filing.
The subpoena came in December 2022, just after the collapse of the FTX crypto exchange, and following the bankruptcy of several other major cryptocurrency trading platforms earlier in the year, including Three Arrows Capital, Voyager Digital Holdings, and Celsius Network.
The SEC is investigating whether any cryptocurrencies supported by the platform are securities and, if so, whether the company has properly registered and complied with regulations.
California’s Attorney General’s office also issued similar subpoenas to Robinhood regarding its trading platform, custody of customer assets, customer disclosures, and coin listings. The company is cooperating with California’s investigation.
Potential consequences
If the SEC or a court determines that any cryptocurrencies supported by Robinhood are securities, the company could face significant consequences.
Robinhood could be forced to stop trading those cryptocurrencies, which would result in regulatory penalties, customer liabilities, and judicial or administrative sanctions.
The company noted this in its filing, stating that “that determination could prevent us from continuing to facilitate trading of those cryptocurrencies (including ceasing support for such cryptocurrencies on our platform).”
Robinhood’s recent troubles
This is not the first time that Robinhood has been in trouble with regulators. In August 2021, the New York District of Financial Services fined Robinhood $30 million for failing to “invest the proper resources and attention to develop and maintain a culture of compliance.” The company was also scrutinized by the Massachusetts Securities Division for allegedly targeting inexperienced investors.
The company has also faced technical glitches, including a glitch that allowed users to temporarily short a meme stock, resulting in a $57 million loss for the company. Despite these challenges, Robinhood’s user base continues to grow, with more than 31 million users as of the end of 2022.
What’s next?
It is unclear what the outcome of the SEC’s investigation will be, and whether any action will be taken against Robinhood. The company is cooperating with regulators and is committed to complying with all applicable laws and regulations.
However, the investigation underscores the need for companies operating in the crypto space to ensure that they are in compliance with regulatory requirements, especially as regulators continue to scrutinize the industry.
Robinhood’s recent troubles highlight the challenges of operating in the crypto space, which is still largely unregulated. For Robinhood, the outcome of the SEC’s investigation could have significant implications for its business and its users.
