Robinhood warns of SEC lawsuit threat over crypto business

Financial Times

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Robinhood has warned of an impending lawsuit from the Securities and Exchange Commission over its cryptocurrency business, in a sign that a US regulatory crackdown on digital assets continues.

The retail brokerage said in a filing on Monday that the SEC had over the weekend sent its crypto unit a so-called Wells notice, which warns a company that it faces legal action. SEC staff have made a “preliminary determination” to recommend enforcement action against the company, which could lead to civil litigation, monetary penalties and limits on business activities.

The SEC has taken a hard line on crypto enforcement, arguing that many tokens constitute securities and should be regulated as such.

Robinhood, founded in 2013, says it has a customer base of more than 23mn investors and $119bn in assets under custody. While also brokering equities and options, it offers commission-free trading of 15 cryptocurrencies in most US states, according to its most recent annual report. Cryptocurrencies accounted for $135mn of its $785mn in transaction-based revenues last year.

The company said Monday it had “made difficult choices not to list certain tokens or provide products, such as lending or staking,” to avoid fall foul of the SEC’s policy stance on cryptocurrencies.

“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,” said Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer.

“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.”

The SEC said it “does not comment on the existence or non-existence of a possible investigation.”

The SEC’s efforts to exert control over the growing digital assets industry have intensified after the failure of FTX in 2022, which culminated this year with founder Sam Bankman-Fried’s 25-year prison sentence on fraud charges. The agency has also sued leading crypto platforms such as Coinbase, Binance and Kraken.

TD Cowen analyst Jaret Seiberg said in a policy note that the SEC’s warning to Robinhood should not come as a surprise and

The full article is available here. This article was published at FT Markets.