The United States Securities and Exchange Commission (SEC) is gearing up for an “enforcement action” against Robinhood’s cryptocurrency operation. This was revealed by a Wells notice the SEC served to this well-known trading platform. Robinhood’s shares took a hit on this news, falling 2.5% in pre-market trading.
A Wells notice signifies that the securities regulator’s investigation of the entity under observation, in this case, Robinhood’s U.S.-based crypto venture, has reached its conclusion. The SEC’s probe was focused on Robinhood’s crypto custodian operations and its cryptocurrency listings. A “preliminary determination” has been made to propose that the SEC instigates an enforcement action pertaining to alleged infractions of securities regulations.
In spite of Robinhood’s efforts to be in good books with the U.S. regulatory agency, the issuance of the Wells notice is a blow. Dan Gallagher, Robinhood Markets’ chief legal, compliance and corporate affairs officer said, “After years of good faith attempts to work with the SEC for regulatory clarity, we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business.” He further asserted that Robinhood didn’t perceive any of its listed assets as securities, and stated the company’s readiness to challenge the SEC to justify any action against Robinhood.
Robinhood has kept away from certain tokens and hasn’t offered crypto lending and staking services that have been previously alleged to be securities offerings by the SEC – all in an effort to steer clear of violating securities regulations. Yet, the company’s chief compliance officer has highlighted how the absence of federal regulatory clarity puts market participants at a disadvantage, hampers regulatory compliance and deters mainstream crypto acceptance.
Gallagher, a former SEC commissioner, likened the regulatory landscape for digital assets to the equities markets in 1932. Both the SEC and the Commodity Futures Trading Commission have not yet established clear stipulations on what they classify as securities and commodities in respect to digital assets.