SEC Accuses Robinhood of Violating Securities Laws

Robinhood has become the next cryptocurrency trading platform to receive a threat of legal action from the Securities and Exchange Commission (SEC), joining an ever-growing list of companies.

In an 8-K form filed on Saturday, the company stated that it received a Wells notice from the SEC on May 4.

Accusations Against Robinhood

Specifically, SEC staff revealed that they have reached a ‘preliminary decision’ to recommend that the agency file a lawsuit for alleged violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934.

According to the SEC’s website, Section 15(a) prohibits or encourages brokers from buying or selling securities unless that broker is registered with the SEC. Meanwhile, Section 17A pertains to defrauding customers through material misstatements or omissions.

Legal remedies may include injunctions, cease-and-desist orders, disgorgement, prejudgment interest, civil monetary penalties, censure, revocation, and activity restrictions, the filing states.

Robinhood stated on Monday that it is ‘disappointed’ by the SEC’s decision after years of good faith efforts to comply with the law and register.

– We firmly believe that the assets listed on our platform are not securities and look forward to working with the SEC to clarify how weak any case against Robinhood would be in terms of both facts and law – said Dan Gallagher, Chief Legal Officer, Compliance, and Corporate Affairs at Robinhood.

Robinhood’s shares remained relatively unchanged on Monday, trading 1.14 percent above Friday’s closing price at $18.16.

SEC’s Next Crypto Target

Robinhood first received an investigative subpoena from the SEC in February 2023 regarding its crypto operations. In June, the exchange removed popular cryptocurrencies including Cardano, Solana, and Polygon from its platform after the SEC raised similar accusations against Binance and Coinbase, claiming that those cryptocurrencies are unregistered securities.

Kraken was also accused of listing securities on its platform in November, despite having decided to pay a $30 million fine for alleged securities violations earlier that year.

This time, Kraken and others have decided to fight the SEC in court, joining a chorus of other companies claiming that the digital assets on their platforms do not qualify as investment contracts.

In addition to centralized trading platforms, the SEC has also threatened to sue the developer of the decentralized exchange Uniswap Labs in April and is now battling the Ethereum infrastructure provider ConsenSys over the status of Ether as a security.

– It seems that the SEC is now abusing the Wells process as a tactic of intimidation – wrote Jake Chervinsky, Chief Legal Officer at crypto VC firm Variant Fund, on Twitter on Monday.

– The SEC is devoting an extremely disproportionate amount of its resources to crypto, given that its actual purpose is to regulate capital and debt markets. Every minute and taxpayer dollar spent on the crypto industry is not spent on the real mission for which Congress created the SEC – added Chervinsky.