SEC Targets Robinhood for Regulatory Breaches

This follows a series of investigative subpoenas issued by the SEC, probing into various aspects of RHC’s operations.

These include its cryptocurrency listings, custody of cryptocurrencies, and overall platform operations. These are collectively referred to as the ‘RHC Activities’.

SEC Examines Robinhood Crypto’s Operations and Compliance

The investigation into RHC has been ongoing, and the company has cooperated fully with the regulatory body. However, developments took a more serious turn on May 4th, 2024, when RHC received a “Wells Notice” from the SEC.

A Wells Notice is a formal notification that the SEC’s staff has made a preliminary determination to recommend enforcement action. In this instance, the SEC is considering action based on alleged violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934.

The specific allegations suggest that RHC may have engaged in activities requiring registration as a broker or dealer. However, they operated without the appropriate registration, violating Section 15(a). Additionally, the potential breach of Section 17A relates to issues around the proper handling and custody of cryptocurrencies. This is a critical component of regulatory compliance for platforms dealing in digital assets.

The SEC’s Wells Notice to Robinhood Crypto doesn’t imply guilt. However, it indicates serious regulatory concerns that could lead to a formal enforcement action. Such actions could include a civil injunctive action, which would legally prohibit RHC from continuing certain practices; public administrative proceedings; and possibly a cease-and-desist proceeding aimed at immediately stopping the alleged improper actions of RHC. Here is the public announcement that Robinhood made some hours ago.

Impact of SEC’s Policies Over Robinhood

Furthermore, the remedies sought by the SEC could be extensive and impactful. They might include injunctions, cease-and-desist orders, disgorgement (which is the repayment of ill-gotten gains), pre-judgment interest, civil money penalties, and potentially severe censures such as the revocation of licenses and limitations on future activities.

Each of these potential outcomes could have significant implications for Robinhood’s crypto operations, affecting its business model and financial health.



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