Robinhood receives SEC Wells Notice over its US crypto Business

Robinhood, a trading company, has stated that the Securities and Exchange Commission may take enforcement action against it shortly, as disclosed in a May 6 announcement.

SEC informed Robinhood of upcoming enforcement action against them by sending a Wells Notice to the business in which the US financial regulator alleges a violation of Sections 15(a) and 17A of the Securities Exchange Act of 1934.

This was disclosed in a Saturday 8-K filing: the company was the recipient of a Wells notice from the SEC staff recommending that the agency pursue legal action against the trading platform for purported securities offenses.

Chief legal, compliance, and corporate affairs officer of Robinhood Dan Gallagher stated in a blog post, “After years of good faith attempts to work with the SEC for regulatory clarity, including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business.”

“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.”

The company was specifically served with a Wells Notice by the SEC at the beginning of May. The correspondence then serves as an announcement of the agency's upcoming enforcement action. Its existence, though, was contingent upon the SEC issuing investigative subpoenas to Robinhood before the Wells Notice was published.

In February, Robinhood revealed that it had received subpoenas from the SEC concerning its cryptocurrency business, namely its platform operations, custody, and listings. As per the document released on Monday, the SEC has discovered grounds to propose that Robinhood broke securities laws.

In response to public actions taken by the SEC against other platforms, Robinhood Crypto has made the difficult decision to neither list certain tokens nor offer services like lending and staking that it previously claimed were securities. Furthermore, Robinhood answered the SEC's calls and made an effort to register as a broker-dealer with the agency for a special purpose.

The regulator's next moves could include fines and restrictions on the exchange's operations, as well as a civil injunctive action, which would entail a trial and/or a cease-and-desist action.

With this development, the SEC has continued to target companies that operate in the cryptocurrency space. Uniswap and Coinbase also got a Wells notice a few months prior to being sued by the SEC for violating securities laws. Similar allegations led to the SEC suing Binance as well, and Changpeng Zhao, the former CEO of the trading platform, is currently facing a four-month prison sentence. 

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