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Robinhood crypto faces regulatory scrutiny with new SEC Wells notice

The SEC might consider several enforcement options against Robinhood, including an injunction, a public administrative proceeding, or a cease-and-desist order

Shashank Bhardwaj
Published: May 7, 2024 01:41:35 PM IST
Updated: May 7, 2024 03:31:33 PM IST

Robinhood crypto faces regulatory scrutiny with new SEC Wells noticeImage: Shutterstock

Robinhood Markets announced that its US cryptocurrency trading division received a Wells notice from the SEC on May 4 regarding the crypto tokens traded on its platform.

The SEC has been particularly vigilant in the wake of the collapse of the FTX cryptocurrency exchange. The agency maintains that certain crypto tokens should be classified and registered as securities. This stance underscores the SEC's rigorous approach to regulating the digital currency sector, a context that is crucial for understanding the Wells notice received by Robinhood Markets. The notice indicates forthcoming enforcement action and does not imply any wrongdoing by the company as of yet.

Dan Gallagher, Robinhood's Chief Legal, Compliance, and Corporate Affairs Officer, expressed confidence that the assets listed on their platform do not qualify as securities. He also mentioned that they are eager to discuss this with the SEC, highlighting the lack of substance in any potential case against Robinhood Crypto.

Meanwhile, the SEC has maintained a stringent approach toward the digital currency industry, classifying most cryptocurrency tokens as securities under its registration requirements. This has led to accusations from various crypto firms of regulatory overreach. The SEC has chosen not to comment on the enforcement action notice, deeming it under investigation.

The SEC might consider several enforcement options against Robinhood, including an injunction, a public administrative proceeding, or a cease-and-desist order. The agency might also require Robinhood to disgorge profits, pay prejudgment interest, and pay civil penalties. Additionally, Robinhood’s cryptocurrency activities could be limited or revoked.

Furthermore, Robinhood is set to release its first-quarter financial results late Wednesday.
Analysts surveyed by FactSet forecast that earnings will rise to six cents per share, marking a significant improvement from last year’s loss of 57 cents per share. Revenue is expected to increase by 24.5 percent to $549 million.

After the announcement, Robinhood's stock fell by up to 7 percent in Monday's premarket trading. Although it recovered nearly 2 percent after the market opened, it ultimately closed the day down by 1 percent. Nevertheless, the shares are still maintaining support above the 50-day moving average.

HOOD stock has seen a substantial rally of over 39 percent in 2024, buoyed by an early rise in Bitcoin prices this year.

Meanwhile, Bitcoin, which had retreated from its March highs, trimmed its gains and declined by approximately 0.9 percent over the last 24 hours, standing at $63,642 as of noon today.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash