The
cryptocurrency arm of the zero-free trading giant Robinhood has agreed to pay
$3.9 million to settle allegations by California’s Attorney General that it
violated state commodities law by prohibiting customers from withdrawing
cryptocurrency from their accounts between 2018 and 2022.
Robinhood Crypto Settles
with California for $3.9 Million
The
settlement, announced
yesterday (Wednesday) by California Attorney General Rob Bonta, marks the
first public action by the state’s Department of Justice against a
cryptocurrency company.
According
to the Attorney General’s office, Robinhood sold commodities contracts in
violation of California law by allowing customers to purchase cryptocurrencies
without actually delivering the assets. During the period in question,
customers were unable to withdraw their crypto and had to sell them back to
Robinhood to exit the platform.
“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,” said Attorney
General Bonta. “I am dedicated to using all the tools available to my office to
protect California consumers in the face of advancing technology in the
marketplace.”
The
investigation also found that Robinhood misled customers about its trading
practices, including claims that it would connect to multiple trading venues to
ensure competitive prices. Additionally, the company failed to disclose
instances where it arranged for trading venues to hold customer assets for
extended periods.
Under the
terms of the settlement, Robinhood must allow customers to withdraw crypto
assets to their own wallets and update its disclosures regarding trading and
custody practices. The company did not admit or deny wrongdoing as part of the
agreement.
“We
are pleased to put this matter behind us,” added Lucas Moskowitz,
Robinhood Markets’ General Counsel. “The settlement fully resolves the
Attorney General’s concerns related to historical practices, and we look
forward to continuing to make crypto more accessible and affordable to
everyone.”
Robinhood Crypto’s
Additional Regulatory Problems
The
settlement comes as Robinhood faces separate scrutiny from the US Securities
and Exchange Commission (SEC), which indicated in May that it is preparing to
file suit over alleged violations of federal securities laws.
“On
May 4, 2024, Robinhood Crypto (RHC) received a ‘Wells Notice’ from
the Staff of the SEC stating that the Staff has advised RHC that it made a ‘preliminary determination’ to recommend that the SEC file an
enforcement action against RHC alleging violations of Sections 15(a) and 17A of
the Securities Exchange Act of 1934, as amended,” Robinhood mentioned in a
filing with the regulator.
The SEC’s
recent measures are in line with actions taken against other cryptocurrency
exchanges like Coinbase and Binance. This reflects the heightened scrutiny that
platforms in the digital asset sector are experiencing, as well as the
persistent legal confrontations between regulatory bodies and industry
stakeholders.
This article was written by Damian Chmiel at www.financemagnates.com.
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