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The SEC warns Robinhood that its cryptocurrency business will face a lawsuit
(Bloomberg) — The U.S. Securities and Exchange Commission warned Robinhood Markets Inc. that it will face enforcement action over its cryptocurrency business, the latest sign that the regulator is unwilling to give up its long-running crackdown years on digital assets.
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Robinhood, best known for stock trading, said Monday that SEC enforcement staff had sent the company a notice to Wells, indicating it had made an initial decision to recommend enforcement action. The company’s shares rose as much as 2.8% in New York.
The company will have an opportunity to respond to the SEC’s allegations before the regulator takes any action. Sometimes, the response convinces the SEC to back down. Otherwise, the regulator can sue or settle with Robinhood to resolve the investigation.
Robinhood’s chief legal officer, Dan Gallagher, said in a statement that the company was disappointed by the move and that company officials “strongly believe that the assets listed on our platform are not securities.” The SEC declined to comment.
The SEC chaired by Gary Gensler argued that most tokens are subject to SEC rules and that the platforms on which they are traded should be registered with the agency. The SEC has filed lawsuits against other high-profile cryptocurrency brokers and trading platforms, including Coinbase Global Inc.
To decide whether an asset is covered by its securities rules, the SEC relies on a test established in a 1946 Supreme Court case. Cryptocurrency advocates say many digital assets don’t meet that standard and that the SEC should provide rules revised to take into account the unique characteristics of the asset class.
Robinhood previously disclosed that it had received an investigative subpoena over its listings and cryptocurrency custody, among other topics. While the company has stopped offering some tokens, it still offers more than a dozen, including Bitcoin, Ether, Litecoin, Aave, and Chainlink, according to its website.
Read More: Robinhood Sued by SEC Over Cryptocurrency Brokerage Business
Digital assets are an important part of Robinhood’s trading business, even as customer enthusiasm has waned. As a share of Robinhood’s trading-based revenue, cryptocurrencies have been in decline since the pandemic-era boom. Cryptocurrencies accounted for less than a fifth of Robinhood’s transaction-based revenue last year, compared to nearly a third in 2021.
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–With assistance from Annie Massa.
(Updates with stock price in second paragraph.)
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