SEC Launches Investigation into Robinhood’s Cryptocurrency Business

The Securities and Exchange Commission (SEC) has launched an investigation into Robinhood’s cryptocurrency business, according to the company’s recent 10-K filing. The popular trading app disclosed that it received an investigative subpoena from the SEC in December 2022, raising concerns about the company’s compliance with regulatory requirements in its cryptocurrency operations.

SEC Investigative Subpoena on Robinhood’s Cryptocurrency Business

The SEC’s subpoena to Robinhood demands information on a range of areas related to the company’s cryptocurrency business, including cryptocurrency listings, custody, and platform operations.

The subpoena follows a volatile year in the cryptocurrency market that saw several high-profile trading venues and lending platforms, such as FTX and Three Arrows Capital, file for bankruptcy. In November 2022, Robinhood’s stock price took a hit when FTX halted non-fiat customer withdrawals from its platform, causing Robinhood’s shares to fall by 18% on that day.

Robinhood has implemented policies and procedures to evaluate the possibility of a cryptocurrency being considered a security under relevant laws. However, the company has acknowledged that these assessments are not conclusive legal judgments, exposing it to legal or regulatory repercussions if any cryptocurrency supported by its platform is classified as a security under U.S. law.

Should any of the cryptocurrencies supported by Robinhood’s platform be deemed securities by the SEC or a court, the company’s ability to facilitate trading of such cryptocurrencies may be restricted. While the implications of the SEC subpoena on Robinhood’s crypto business remain uncertain, the development underscores the regulatory challenges that come with operating in the rapidly-changing and developing crypto industry.

Robinhood’s Troubles with SEC in the Past

Robinhood has had previous confrontations with the SEC in the past. In 2020, the regulator charged Robinhood Financial for misleading customers and not disclosing payments received from trading firms for routing customer orders to them. Robinhood settled the charges for $65 million without admitting or denying the SEC’s findings.

Despite this setback, the company went on to profit from the Dogecoin craze in 2021 and expanded its list of available cryptocurrencies on its platform. However, with the recent subpoena related to its cryptocurrency business, Robinhood faces renewed regulatory risks in the fast-moving and evolving crypto market.

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