Robinhood has found itself in the regulatory spotlight as its Robinhood Crypto LLC unit receives a Wells Notice from the US Securities and Exchange Commission (SEC), signaling a potential enforcement action recommendation.

The notice follows investigative subpoenas from the SEC targeting various aspects of Robinhood Crypto’s operations, including cryptocurrency listings, custody practices, and platform operations. Robinhood asserts its cooperation with the ongoing investigation.

Outlined in the Wells Notice is the SEC staff’s preliminary determination to advise the Commission to pursue enforcement action against Robinhood Crypto. Allegations cite potential violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934. The proposed action could involve civil injunctive measures, public administrative proceedings, and/or cease-and-desist orders, along with remedies such as injunctions, disgorgement, civil penalties, and regulatory sanctions.

Regulatory Heat: Robinhood Crypto Arm Receives Wells Notice from SEC

In response, Dan Gallagher, Robinhood’s Chief Legal, Compliance, and Corporate Affairs Officer, expressed disappointment with the SEC’s decision, highlighting the company’s prior efforts to collaborate for regulatory clarity. Gallagher emphasized Robinhood’s stance that the assets listed on its platform do not constitute securities and pledged to engage with the SEC to address any legal concerns.

Robinhood Crypto defended its practices, citing proactive measures such as refraining from listing certain tokens and services, like lending and staking, which the SEC has previously deemed as securities. Additionally, the company noted its attempt to register a special purpose broker-dealer with the regulatory body in compliance with regulatory guidelines.

The development shows the increasing scrutiny faced by cryptocurrency platforms from regulatory authorities, as the industry navigates evolving legal frameworks and compliance standards. Robinhood’s response signals a commitment to engaging with regulators while maintaining its position on the classification of crypto assets.

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