Robinhood Receives Wells Notice From the US SEC

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Robinhood has received a Wells Notice from the US Securities and Exchange Commission (SEC) regarding its token listing. According to a Form 8-k filing, the issuance of a Wells Notice indicates that the SEC staff has completed its investigation into Robinhood’s token listing and is considering enforcement action against the company.

Robinhood is Likely to Face Lawsuit 

In the filing, it was also stated that the regulator is accusing the company of violating securities violations concerning some of its listings. In response to the Wells Notice, Robinhood said it will engage with the SEC to address any concerns raised and seek to resolve the matter through negotiations or legal proceedings.

According to Dan Gallagher, Chief Legal Compliance and Corporate Affairs Commission, the firm believes the assets listed on its platform are not securities, and as such looks forward to engaging with the SEC. However, the notice provides Robinhood an opportunity to respond to the SEC’s findings before any formal charges are filed.

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Robinhood Receives Investigative Subpoena

In 2023, Robinhood Markets Inc. received an investigative inquiry from the SEC. The subpoena requested information concerning certain cryptocurrencies supported on its platform, crypto preservation, and methods of its operation. Notably, the investigation was prompted by a series of bankruptcies filed by several crypto companies including FTX in 2022.

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 consumer protection, cybersecurity, and anti-money laundering laws.

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.

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In addition, customers who traded such supported cryptocurrency and suffered trading losses may seek to reverse such transactions because 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.

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