Robinhood’s crypto arm receives SEC warning over alleged securities violations

Robinhood’s cryptocurrency division could soon be in trouble with the Securities and Exchange Commission. In an 8-K filing submitted on Saturday, Robinhood revealed that it received a Wells notice from the SEC’s staff recommending the agency take action against the trading platform for alleged securities violations.

Robinhood says it received the Wells notice after cooperating with the SEC’s requests for investigative subpoenas about its crypto listings, custody of cryptocurrencies, and the platform’s operations. A Well notice is a letter from the SEC that warns a company of a potential enforcement action. The SEC’s response could include an injunction, a cease-and-desist order, disgorgement, limits on activities, and / or civil penalties.

Coinbase similarly received a Wells notice just months before the SEC sued it for breaking securities law. The SEC also sued Binance on similar grounds, with the trading platform’s former CEO, Changpeng Zhao, now facing four months in prison.

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

Robinhood says it already made the “difficult choice” to delist certain tokens — including Solana, Polygon, and Cardano — in response to the SEC’s 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 the exchanges and the registered tokens.

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