Robinhood's legal chief says good luck registering a blockchain business with SEC
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It's not so easy to register a blockchain business with the SEC, at least not according to consumer investment company Robinhood.
Why it matters: A consistent narrative from the U.S. regulator is that companies in the cryptocurrency industry are simply refusing to follow securities law by registering their businesses with the agency.
- Robinhood's account details how it tried very hard and still failed, despite priding itself on regulatory compliance.
What they're saying: "Nothing is stopping the Commission from moving now to provide tailored relief that allows firms to register (even if provisionally) and continue to innovate in the meantime. It has simply chosen — consistently — not to do so," Daniel Gallagher, Robinhood's head compliance attorney, said in testimony before the House subcommittee on digital assets Wednesday.
- "We heard [SEC] chair [Gary] Gensler's call to register loud and clear," he told the subcommittee during the Q&A.
According to Gallagher, Robinhood spent two years, an enormous amount of money and effort (including at least a dozen meetings with SEC staff) to find a way to comply under existing rules.
- It offered suggestions on exemptions that could be crafted. It drafted no-action letters. It held discussions he described as fruitful and intellectually interesting with SEC staff, but it ultimately went nowhere.
- Then in 2023, Robinhood's legal team got what Gallagher called a "perfunctory note" from the SEC chair's office that there was no need to continue the conversations.
- "His office told us there was no path forward," Gallagher said during the hearing. He found it was not possible for Robinhood to register, despite the company being careful not to list anything that might run afoul of securities laws.
The latest: Robinhood received a notification that it was likely to be sued by the agency, joining the ranks of Uniswap, OpenSea and Coinbase, among others.
- "Because the commission has taken a rigid, hostile approach to cryptocurrency and refused to provide regulatory clarity, U.S. customers have suffered as innovation has moved overseas," Gallagher said in his testimony.
Gallagher is calling on the SEC to write temporary rules for businesses that want to offer cryptocurrency-related services (such as brokers, like Robinhood) under Section 36 of the Exchange Act, which authorizes the agency to be flexible around new kinds of securities.
- He notes that the regulator — which he served in as a commissioner from 2011 to 2015 — used that authority in 1998 for alternative trading systems.
Brady's thought bubble: Companies don't often go on the record talking about dealing with the agency behind the scenes, but I've heard similar stories for years — off the record they go even further.
Context: Robinhood began offering trading in bitcoin and ether in 2018.
- At times, cryptocurrency has been a major part of its trading business.
State of play: "We have to look over our shoulder left and right," Gallagher told the subcommittee.
- In his written testimony and on the stand, he urged Congress to step in.
