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Robinhood Receives New Legal Threat From SEC As Crypto Crackdown Continues
Robin Hood (HOOD) said it received a warning from the Securities and Exchange Commission that the trading platform could face enforcement actions related to its crypto activities in the United States.
The so-called Wells notice that Robinhood received on May 4 stated that SEC staff had made a “preliminary determination” to recommend the action due to registration violations as a securities broker-dealer and transfer agent .
Its stock fell about 1% as of Monday’s close.
Robinhood warned in its disclosure that potential SEC action could mean a civil complaint and public court proceeding that could end in a fine, a cease and desist order, and other limitations on its crypto activities.
“After years of good faith attempts to work with the SEC to clarify the regulations, including our well-known attempt to ‘go in and register,’ we are disappointed that the agency has decided to issue a Wells Notice” , said Robinhood’s head of legal and compliance. and Corporate Affairs Manager Dan Gallagher said in a blog job.
The SEC has gone after a number of companies that allow US customers to trade cryptocurrencies as part of a broad crackdown on the sector.
Last June, the agency filed a lawsuit against the largest US cryptocurrency exchange, Coinbase (PIECE OF MONEY), alleging that it operated an unregistered exchange by authorizing the sale of certain cryptographic tokens that the agency considers to be investment securities – and therefore within the SEC’s jurisdiction.
Currently, Coinbase and its CEO, Brian Armstrong, are fighting these allegations. They argued that the cryptocurrencies sold through its exchange are more like baseball cards than securities.
Brian Armstrong, CEO of Coinbase, speaks at a rally March 4 in Los Angeles. (Jason Armond/Los Angeles Times via Getty Images) (Jason Armond via Getty Images)
The regulator made a similar argument in a separate lawsuit against Binancearguing that the exchange also allowed certain digital currencies to be traded on its platform that should have been registered with the SEC.
Robinhood’s chief legal officer made the same argument as Coinbase on Monday, saying: “We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to clearly demonstrate how any case against Robinhood is weak. Crypto would rely on both facts and law.
Robinhood previously said its crypto business was under investigation by the SEC, with the trading platform having disclosed that the SEC had sent subpoenas.
Electronic screens in New York’s Times Square announce Robinhood’s 2021 IPO. (AP Photo/Mark Lennihan, File) (ASSOCIATED PRESS)
What could make this legal threat less serious for Robinhood is that the trading company makes far less of its total revenue from crypto trading than firms that focus more on crypto, the Mizuho analyst said, Dan Dolev, in a Monday research note.
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In Q4 2023, Robinhood had total net revenue of $471 million, of which 9.13% came from crypto-related transaction fees.
“In our opinion, concerns about the advisory are likely overblown,” said Dolev, who has a buy rating on Robinhood shares.
Robinhood reports its first quarter results Wednesday after the market close.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto and other areas of finance.
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