The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. about its cryptocurrency business, indicating that enforcement action may be taken against the company as part of the regulator’s ongoing crackdown on digital assets. The SEC sent Robinhood a Wells notice on Monday, which suggested that enforcement action could be recommended. As a result, the company’s shares dropped by over 2% in premarket trading.
The company will have the chance to respond to the SEC’s allegations before any action is taken, with an opportunity to convince the regulator to reconsider. However, 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 and maintained that the assets listed on their platform are not securities. The SEC declined to provide further comment on the matter.
Under Chair Gary Gensler’s leadership, the SEC has taken a stance that most tokens are subject to its regulations and that trading platforms dealing with them should be registered with the agency. This approach has led to enforcement actions against other prominent crypto brokerages and trading platforms like Coinbase Global Inc., who also received an investigative subpoena from Robinhood related to their cryptocurrency listings and custody procedures.
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 this asset class. The situation with Robinhood and the SEC continues to develop as
