Robinhood Confirms an SEC Investigation Into Their Cryptocurrency Operation
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On February 27th, the stock and crypto trading application, Robinhood, revealed that they are currently being investigated by the U.S. Securities and Exchange Commission.
The revelation comes from Robinhood's most recent 10-K filing, and states that the company received an "investigative subpoena" from the SEC to look into the platform's cryptocurrency operation.
There is not too much information about the ongoing investigation, but Robinhood's filing does state that the investigation is in regards to the company's "supported cryptocurrencies, custody of cryptocurrencies, and platform operations".
Here is the direct quote from the filing which briefly mentions the SEC Investigation:
"From time to time, we have received, and might in the future receive SEC inquiries regarding specific cryptocurrencies supported on our platform and added features and in December 2022, following the 2022 Crypto Bankruptcies, we received an investigative subpoena from the SEC regarding, among other topics, RHC’s supported cryptocurrencies, custody of cryptocurrencies, and platform operations."
- Robinhood
Robinhood is clearly worried about this investigation and the ramification it can have on their business operations, as well as the liability it may open them up to.
Based off the 10-K filing it sounds like Robinhood would delist the cryptocurrencies to stay in line with regulation, if the SEC were to determine a crypto to be a security.
With the SEC Chair Gary Gensler recently saying "everything other than Bitcoin is a security", you can understand why companies like Robinhood are bracing for impact.
I want to share another section from Robinhood's 10-K filing, where the company goes on about the potential issues that may be caused by the SEC's investigation and subsequent ruling:
"To the extent that the SEC or a court determines that any cryptocurrencies supported by our platform are securities, that determination could prevent us from continuing to facilitate trading of those cryptocurrencies (including ceasing support for such cryptocurrencies on our platform). It could also result in regulatory enforcement penalties and financial losses in the event that we have liability to our customers and need to compensate them for any losses or damages. We could be subject to judicial or administrative sanctions for failing to offer or sell the cryptocurrency in compliance with securities registration requirements, or for acting as a securities broker or dealer without appropriate registration.
Such an action could result in injunctions and cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Customers that traded such supported cryptocurrency through our platform and suffered trading losses might also seek to rescind transactions that we facilitated on the basis that they were conducted in violation of applicable law, which could subject us to significant liability and losses. We might also be required to cease facilitating transactions in the supported cryptocurrency, which could negatively impact our business, operating results, and financial condition."
- Robinhood
This is clearly another case of the SEC going around and trying to subpoena the cryptocurrency industry until they fall in line and follow orders.
It makes sense that the SEC would also be going after Robinhood and other traditional financial institutions to dissuade them from getting into cryptocurrency.
Based off Robinhood's statements, it will be most likely be easier to leave the cryptocurrency market instead of fight the SEC and other regulatory agencies on the matter.
Robinhood currently has 18 cryptocurrencies listed on their application, and have focused on releasing their own Robinhood Wallet and other ventures into web3.
In my opinion, it would be shocking to see Robinhood dip out of the cryptocurrency space after all the effort and resources they put into it.
What are your thoughts on this news?
Why do you think Robinhood kept this investigation under wraps for so long?
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