The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. regarding its crypto business, signaling a potential enforcement action against the company as part of the regulator’s ongoing crackdown on digital assets. According to reports, Robinhood, which is primarily known for its stock trading platform, received a Wells notice from the SEC’s enforcement staff. This notice suggested that enforcement action may be recommended.
Robinhood shares declined by over 2% in premarket trading following the news. However, the company will have the opportunity to respond to the SEC’s allegations before any action is taken. If no resolution is reached, the SEC may choose to pursue legal action or reach a settlement with Robinhood to resolve the investigation.
Robinhood’s chief legal officer, Dan Gallagher, expressed disappointment over the move, maintaining that the assets listed on their platform are not securities. The SEC, responsible for overseeing assets classified as securities, declined to provide further comment on the matter.
Under Gary Gensler’s leadership as Chairman of the SEC, there has been an increased focus on enforcing regulations in the digital asset space. The regulator has taken a stance that most tokens are subject to their regulations and that trading platforms dealing with them should be registered with them. This approach has led to enforcement actions against other prominent crypto brokerages and trading platforms such as Coinbase Global Inc., which also received an investigative subpoena related to its cryptocurrency listings and custody procedures earlier this year.
To determine whether an asset falls under their securities regulations, the SEC applies a test outlined in a 1946 Supreme Court case. However, advocates for cryptocurrencies argue that many digital assets do not meet this standard and suggest that the SEC should establish revised rules that consider the unique characteristics of the asset class.
As it stands now, it appears that Robinhood is facing regulatory scrutiny from
