US neobroker Robinhood (NASDAQ:HOOD) has announced that its Robinhood Crypto LLC unit has received a Wells Notice from the U.S. Securities and Exchange Commission staff, indicating they will recommend that the Commission file an enforcement action.
More formally, Robinhood Crypto received investigative subpoenas from the SEC regarding, among other topics, its cryptocurrency listings, custody of cryptocurrencies, and platform operations. Robinhood said that it has cooperated with this investigation.
The “Wells Notice” from the Staff of the SEC states that the Staff has advised that it made a “preliminary determination” to recommend that the SEC file an enforcement action against Robinhood Crypto, alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, as amended. The potential action may involve a civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding and may seek remedies that include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities.
Robinhood Chief Legal, Compliance and Corporate Affairs Officer Dan Gallagher said in a formal response,
“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business.
“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.”
Robinhood Crypto said in response that it has made difficult choices not to list certain tokens or provide products, such as lending and staking, that the SEC previously alleged are securities in public actions against other platforms. Moreover, Robinhood said it has heeded the SEC’s calls and attempted to register a special purpose broker-dealer with the agency.
We will continue to follow this story as it develops.
