Robinhood Settles for $3.9M Over Blocked Crypto Withdrawals
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Highlights:
- Robinhood settles for $3.9M over crypto withdrawal and transparency issues.
- The agreement requires improved transparency and customer asset withdrawals.
- Despite the settlement, ongoing regulatory challenges continue to impact Robinhood.
On September 4, California Attorney General Rob Bonta announced a $3.9 million settlement with Robinhood Crypto LLC, a US-based mobile trading platform. This settlement resolves issues related to Robinhood’s failure to allow customers to withdraw cryptocurrency from their accounts between 2018 and 2022 and its lack of transparency regarding trading and handling practices.
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We are announcing a $3.9 million settlement with Robinhood for failing to allow customers to withdraw cryptocurrency from their accounts.
As CA AG, I will continue to protect investors in the marketplace.https://t.co/PguPywsG8O pic.twitter.com/uKTJMwmstJ— Rob Bonta (@AGRobBonta) September 4, 2024
California DOJ Accuses Robinhood of Misleading Crypto Practices
The California Department of Justice (DOJ) found that Robinhood violated state law by selling commodities contracts, allowing customers to buy cryptocurrency without actually delivering the assets. Customers were then forced to sell their crypto back to Robinhood to withdraw their funds from the platform.
The investigation revealed that Robinhood misled customers about its trading practices, including false claims that it would connect to multiple trading platforms to secure competitive prices. Additionally, the firm did not disclose instances where it arranged for trading venues to hold customer assets for prolonged periods.
Attorney Bonta highlighted the importance of consumer protection in the sector, stating:
“Our investigation and settlement with Robinhood should send a strong message: Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws.”
Robinhood Crypto LLC’s Settlement
The California DOJ’s action is one of the state’s first major public enforcement efforts against a cryptocurrency company. Under the settlement, Robinhood must permit customers to withdraw their cryptocurrency assets to external wallets, adhering to legal standards. Additionally, the trading app must ensure that its statements to customers accurately reflect its trading practices, specifically concerning order routing and cryptocurrency transaction pricing.
Robinhood did not admit wrongdoing, but its general counsel, Lucas Moskowitz, referred to the settled issues as “historical practices” and expressed satisfaction with resolving the matter. The company had previously disclosed receiving subpoenas from the California Attorney General concerning its trading platform, operations, and coin listings.
On September 5, Robinhood shares (HOOD) dropped 1.34% to $19.11 but saw a slight increase in after-hours trading. This settlement is part of Robinhood’s broader efforts to improve its image, following the return of meme stock trading figure Keith Gill earlier this year, which has contributed to a 54.5% rise in its stock price so far in 2024.
Robinhood Faces Continued Regulatory Scrutiny
Robinhood has encountered similar regulatory challenges previously. In 2020, the SEC fined the platform $65 million for misleading customers about its revenue sources and failing to execute orders at the best prices. The SEC alleged that Robinhood sold customer orders to market makers at elevated rates, often resulting in customers not receiving the best trade prices.
Earlier this year, the SEC issued a Wells Notice to Robinhood, indicating potential violations of securities laws in its cryptocurrency operations. Robinhood’s CEO, Vlad Tenev, criticized the agency’s actions as part of a broader “regulatory onslaught” against the cryptocurrency industry. He contended that these actions hinder innovation and place US companies and investors at a disadvantage.
The SEC just sent a Wells notice to Robinhood.
The number they've sent about crypto in recent months is astonishing. It's hard to imagine that they would (or could) bring so many enforcement actions at once.
It seems like they're abusing the Wells process as a scare tactic now.
— Jake Chervinsky (@jchervinsky) May 6, 2024
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