Robinhood Receives Investigative Subpoena from the US SEC

Robinhood Markets Inc, which recently announced a rebound in its crypto trading volume said it received an investigative inquiry from the Securities and Exchange Commission (SEC) in December, according to its recent 10-K filing. 

The subpoena requests information concerning certain cryptocurrencies supported on Robinhood’s platform, crypto preservation, and methods of its operations. The investigation was prompted by a series of bankruptcies filed by several crypto companies including FTX in 2022.

Notably, Robinhood’s revenue was also negatively impacted during the collapse of exchanges in the industry. The firm generated $51 million in cryptocurrency revenue in the third quarter of 2022, a 12% decrease from the $58 million gain it had the year prior.

Robinhood also hinted in its filing that it might be subject to regulatory investigation regarding the “securities status” of cryptocurrencies supported in its platform.

The firm also added that its evaluations are not final legal judgments even though its business procedures are made to evaluate the possibility that a certain cryptocurrency might be classified as a security under relevant legislation.

Implications of Supporting Crypto Considered as Securities

Robinhood could face several sanctions if the SEC or court eventually determines that the company has been supporting cryptocurrencies deemed as securities.

Injunctions, cease-and-desist orders, civil monetary fines, disgorgement, criminal culpability, and reputational harm are all possible outcomes of such an action. 

In addition, customers who traded such supported cryptocurrency and suffered trading losses may seek to reverse such transactions on the grounds that they were illegal. This may eventually expose the firm to significant liability and losses.

Furthermore, the firm’s growth may be hampered if it is unable to extend its platform to incorporate additional cryptocurrencies that the SEC has ruled to be securities or those anticipated are likely to be determined to be securities.

Interestingly, this is not the company’s first encounter with regulatory agencies. In 2020, The New York State Department of Financial Services (NYDFS) imposed a fine of $30 million on Robinhood Crypto, for allegedly breaking laws relating to consumer protection, cybersecurity, and anti-money laundering.