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Robinhood Crypto, the digital asset arm of the popular trading platform Robinhood Markets, has been served with a Wells Notice by the US Securities and Exchange Commission (SEC). The securities regulator informed the company that it plans to file an enforcement action over alleged securities violations.
Robinhood said it’s determined to prove “just how weak any case against Robinhood Crypto would be on both the facts and the law.”
SEC Slaps Robinhood With Wells Notice
Robinhood received a Wells Notice from the Securities and Exchange Commission on May 4, according to an 8K disclosure on Monday.
The notice indicates that the SEC is considering enforcement action against Robinhood’s crypto division for possible violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934. Simply put, the U.S. regulator believes Robinhood offers its customers crypto assets which it considers unregistered securities.
The SEC has been investigating Robinhood’s crypto listings and crypto custodian operations and made the “preliminary determination” to recommend that the agency lodge an enforcement action related to the alleged securities violations.
The SEC just sent a Wells notice to Robinhood.
— Jake Chervinsky (@jchervinsky) May 6, 2024
The number they've sent about crypto in recent months is astonishing. It's hard to imagine that they would (or could) bring so many enforcement actions at once.
It seems like they're abusing the Wells process as a scare tactic now.
Robinhood’s chief legal and compliance officer, Dan Gallagher, indicated that the notice comes despite the company cooperating with the SEC. He voiced disappointment over the issuance of the warning notice:
“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 US crypto business,” Gallagher posited.
Notably, in December 2022, the SEC issued an investigative subpoena regarding Robinhood’s crypto listings, cryptocurrency custody, and general platform operations. Robinhood Crypto currently allows New York investors to buy and sell 15 different cryptocurrencies, including Bitcoin, Ethereum, Dogecoin, and Shiba Inu.
The top American financial cop has previously issued similar notices, warning about legal actions against crypto exchanges Coinbase, Binance, and Uniswap.
Confident In Regulatory Position
Gallagher, who previously served as an SEC commissioner from 2011 to 2015, said Robinhood is ready to prove to the SEC that their crypto listings are compliant and the cryptocurrencies they offer are not securities.
“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,” he continued.
Neither the SEC nor the Commodity Futures Trading Commission (CFTC) has yet to issue clear-cut guidelines on what they view as securities and commodities in terms of crypto assets.
Currently, the only cryptocurrency that the SEC has publicly called a commodity is Bitcoin (BTC). Ethereum also held this status for years, until recently when the SEC Chair Gary Gensler hinted that the industry’s second-largest crypto might be deemed a security following its transition from proof-of-work to a proof-of-stake security model.
On the contrary, the CFTC in March declared that Ether is a commodity alongside Bitcoin and Litecoin (LTC).