SEC could sue Robinhood as security violation investigation continues

The Securities and Exchange Commission (SEC) is continuing its investigations into cryptocurrency exchanges, with the potential to sue Robinhood Markets.

The SEC, in its role as an agency responsible for regulating the securities markets and protecting investors, could sue US-based Robinhood Markets over securities violations alleged in the popular crypto app. In a recent SEC filing dated May 4, Robinhood Markets Chief Financial Officer Jason Warnick confirmed that Robinhood Crypto has received investigative subpoenas from the SEC regarding its “cryptocurrency listings, custody of cryptocurrencies, and platform operations.”

This comes after months of investigations into suspected security violations, which Robinhood has thus far cooperated with. However, according to the filing, the SEC sent a Wells Notice on Monday, May 6, which told the crypto app that the agency had made a “preliminary determination” and recommended that an enforcement action should be filed stating that Robinhood Crypto had violated the Securities Exchange Act of 1934.

What does the SEC filing mean?

If an enforcement action is filed, then the next steps could lead to a civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding, according to the filing.

Robinhood publicly responded to the SEC filing via a statement from Dan Gallagher, the app’s chief legal, compliance, and corporate affairs officer, on May 6, writing that he was “disappointed”.

“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law,” he stated.

Last June, Gallagher testified to Congress that 18 months’ worth of talks with the SEC did not help Robinhood understand how to properly register its crypto trading business. While the company maintains that no security violations have taken place, it described the situation as a “world of confusion around crypto” on its website in December 2023.

Featured image: Unsplash