May 6, 2024 - Business

SEC sends Robinhood's crypto business Wells Notice

Illustration of a pixel coin spinning behind a No symbol.

Illustration: Natalie Peeples/Axios

The SEC issued a Wells Notice on May 4, stating that staff had made a "preliminary determination" alleging that Robinhood had violated securities law.

Why it matters: The flurry of token delistings last year by Robinhood and other brokerages hasn't assuaged the SEC as it continues to crack down on the sector.

Zoom in: Specifically, the staff is now recommending enforcement action against the company, citing Sections 15(a) and 17A of the Securities Exchange Act of 1934 — which require entities dealing with securities to register as broker and clearing agencies.

What they're saying: "We firmly believe that the assets listed on our platform are not securities," Dan Gallagher, Robinhood's chief legal, compliance and corporate affairs officer said in a statement

  • He noted that Robinhood has previously tried to register as a special purpose broker-dealer for digital assets, going through a 16-month process that turned out to be fruitless.

Context: Robinhood first disclosed an SEC investigation into its crypto business in December 2022.

  • In June 2023, the stock-trading platform delisted Cardano, Polygon and Solana tokens that the commission named as unregistered securities in lawsuits against Coinbase and Binance.
  • That same month, trading platforms eToro and Bakkt also delisted a handful of tokens named in the suits, while Coinbase refused to cull its trading pairs and has been fighting the suit.

The bottom line: Shares of Robinhood dipped in early trading Monday, before rising 2%.

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