Cryptocurrency Company Robinhood to settle $3.9M penalty with California over blocked crypto withdrawals
Cryptocurrency firm Robinhood has agreed to pay settlement fees of up to $3.9 million following customer complaints filed years ago over failure to withdraw their digital asset.
On Wednesday, California Attorney General Rob Bonta, in a press release, announced a $3.9 million settlement with Robinhood for the crypto trading platform's failure to fully disclose certain aspects of its trading and order handling arrangements and for not allowing customers to withdraw cryptocurrency from their Robinhood accounts between 2018 and 2022.
The settlement includes strong conduct requirements and a $3.9 million penalty, concluding the investigation into Robinhood's violation of the California Commodities Law (CCL).
Attorney General Bonta stated, "Even though cryptocurrencies are fairly new, California consumer protection laws are strong and enduring, and they protect Californians against misrepresentation, including by cryptocurrency firms."
Bonta further explained that the investigation and settlement with the crypto trading platform should send a clear message: California's consumer and investor protection laws must be followed by all businesses. In the face of evolving technology in the marketplace, I'm committed to using every tool at my office's disposal to protect consumers in California.
The popularity of cryptocurrencies as a digital investment has grown in recent years, and it's vital to keep in mind the market is extremely volatile and there is no government guarantee or insurance for it. The Robinhood investigation was prompted by consumer complaints about dubious activity within the cryptocurrency space, the post added.
The California Department of Justice's investigation came to the conclusion that Robinhood had sold commodities contracts in violation of the CCL by enabling customers to purchase cryptocurrencies without actually delivering these assets to them—a move that would have made them hope their investment would increase in value soon. Customers had to sell their cryptocurrency back to Robinhood in order to exit the trading platform during that time since they were unable to withdraw it.
Customers were deceived by Robinhood when it claimed it would connect to several trading venues and guarantee they would receive the most competitive prices available across the venues—a claim that wasn't always accurate. Additionally, Robinhood assured its customers that all of the cryptocurrency they had bought through its platform was held by the crypto trading platform itself. In spite of these guarantees, Robinhood failed to inform users that it had occasionally arranged for trading venues to hold user assets for extended periods of time.
Apart from the $3.9 million fine, Robinhood is required by the current settlement to permit users to take their cryptocurrency holdings out of Robinhood and deposit them into their own wallets. Make sure that all written statements the company makes to clients regarding its order handling and trading procedures—such as how orders are routed to trading venues and the prices at which cryptocurrencies are bought and sold—materially align with these procedures.
In addition, make it plain to customers that Robinhood will hold onto any cryptocurrency they may own and amend its Customer Agreement to include a disclaimer that in the event of an incident raising doubts about the network security of a cryptocurrency asset.
In terms of accessibility for US-based customers, in particular, Robinhood elevates its profile above other industry giants like Coinbase and Kraken. In July, it announced the expansion of its cryptocurrency services in the United States, including the US Virgin Islands, Puerto Rico, and Hawaii.
Robinhood also intends to establish a stronger worldwide footprint by expanding its services outside of the United States and into the European Union. The $200 million cash deal to acquire Bitstamp, a cryptocurrency exchange, is another proof of Robinhood's ambitious roadmap and commitment to becoming a dominant force in the trading industry. It is anticipated that the Bitstamp acquisition will close in the first half of 2025.
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