Robinhood’s Crypto Business Under Fire from SEC

Robinhood, the popular trading app, has disclosed in its recent 10-K filing that it received an investigative subpoena from the Securities and Exchange Commission (SEC) in December 2022.

The subpoena requested information on Robinhood's cryptocurrency listings, custody of cryptocurrencies, and platform operations.

The subpoena comes after a turbulent year in the cryptocurrency market, with several major trading venues and lending platforms filing for bankruptcy, including FTX and Three Arrows Capital. Robinhood's stock price was also impacted in November 2022, falling by 18% on the day that FTX halted all non-fiat customer withdrawals from its platform. 

Robinhood's policies and procedures are designed to assess the likelihood that a particular cryptocurrency could be deemed a security under applicable laws. However, the company has stated that these assessments are not definitive legal determinations, leaving the company vulnerable to legal or regulatory action if a cryptocurrency supported by its platform is determined to be a security under U.S. law.

It remains to be seen how this subpoena will affect Robinhood's cryptocurrency business, but it serves as a reminder of the regulatory risks involved in the fast-moving and evolving crypto market.

This is far from being the company's first run-in with the formidable regulator. In late 2020, the SEC charged Robinhood Financial for repeatedly making false statements and failing to disclose the receipt of payments from trading firms for routing customer orders to them. The SEC alleges that Robinhood misled customers between 2015 and late 2018 in communications about its largest revenue source. Robinhood agreed to pay $65 million to settle the charges without admitting or denying the SEC's findings.

After profiting off the Dogecoin craze in 2021, Robinhood significantly expanded the list of available cryptocurrencies on its platforms.