Robinhood’s Crypto Arm Receives SEC Warning Over Alleged Securities Violations

Robinhood’s cryptocurrency division could soon run into trouble with the Securities and Exchange Commission. On a 8-K Filing sent on Saturday, Robinhood revealed which received a notice from Wells from the SEC staff recommending that the agency take action against the trading platform for alleged securities violations.

Robinhood says it received Wells’ notice after cooperating with the SEC’s requests for investigative subpoenas into its cryptocurrency listings, cryptocurrency custody and the platform’s operations. A pit warning is a letter from the SEC that alerts a company to possible enforcement action. The SEC’s response could include an injunction, a cease and desist order, restitution, activity limits, and/or civil penalties.

“We firmly believe that the assets listed on our platform are not securities and look forward to engaging with the SEC to make clear how weak any case against Robinhood Crypto would be, both on the facts and in law,” Dan Gallagher, Robinhood’s chief legal, compliance and corporate affairs officer said in a statement.

Robinhood says it has already made the “difficult choice” to delist certain tokens – including Solana, Polygon and Cardano — in response to SEC lawsuits against other trading platforms. In the past, the SEC has argued that some cryptocurrencies are considered securities, which would require exchanges to register with the SEC. This would give the agency regulatory control over exchanges and registered tokens.

Robinhood could face a long legal battle if it decides to fight the SEC’s potential enforcement action. The company’s shares already dived in response to the news.