The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. regarding potential enforcement action related to its crypto business. This move by the SEC indicates that it is continuing its crackdown on digital assets. Robinhood, primarily known for stock trading, received a Wells notice from the SEC’s enforcement staff, suggesting that enforcement action may be recommended. As a result, the company’s shares dropped over 2% in premarket trading.
Before taking any action, Robinhood will have the opportunity to respond to the allegations. In some cases, the response can persuade the SEC to reconsider. If not, the regulator may sue or settle with Robinhood to resolve the matter. Robinhood’s chief legal officer expressed disappointment in the SEC’s move, stating that the assets listed on the platform are not considered securities by the company.
The SEC has claimed that most tokens fall under its rules and that platforms where they are traded should be registered with the agency. The SEC has taken action against other prominent crypto brokerages and trading platforms, such as Coinbase Global Inc., indicating that it is determined to enforce its regulations in this space. Robinhood had previously disclosed that it received an investigative subpoena related to its cryptocurrency listings and custody, further highlighting their focus on this area of concern.
To determine if an asset falls under securities rules, the SEC follows a test outlined by a 1946 Supreme Court case. Crypto advocates argue that many digital assets do not meet this standard and that revised rules should be developed to account for their unique characteristics as an asset class. However, under Chair Gary Gensler’s leadership at the SEC, there has been increased activity in enforcing regulations within this space.
