- Robinhood Markets Inc. has received an investigative subpoena from the U.S. Securities and Exchange Commission (SEC) in December 2022, related to its trading and handling of cryptocurrencies.
- The SEC’s subpoena relates to Robinhood’s “cryptocurrency listings, custody of cryptocurrencies, and platform operations.”
- The SEC has been increasing its scrutiny of the crypto industry following a series of bankruptcies in 2022, including the collapse of crypto exchange FTX.com in November.
In December of 2022, Robinhood Markets Inc. received an investigative subpoena from the U.S. Securities and Exchange Commission (SEC) regarding its trading and handling of cryptocurrencies, according to the company’s annual 10-K filing. The SEC’s subpoena focuses on Robinhood’s “cryptocurrency listings, custody of cryptocurrencies, and platform operations.”
This subpoena came as the SEC increased its scrutiny of the cryptocurrency industry following a string of bankruptcies in 2022, including the collapse of Bahamas-based crypto exchange FTX.com in November. The destruction of FTX.com was the largest in a series of major crypto-related failures in 2022, which sparked a cryptocurrency rout and left creditors facing losses of billions of dollars.
The Crypto Industry Coming Under Regulatory Scrutiny
The SEC has maintained that pre-existing securities laws also apply to digital assets and that many crypto tokens meet the definition of a security. The crypto industry has previously criticized this stance, but the SEC has remained firm.
According to its latest earnings report, Robinhood’s crypto earnings fell 24% to US$39 million in the fourth quarter of 2022. The company’s annual 10-K filing notes that if the SEC were to change its classification of a particular cryptocurrency to be a security, Robinhood might be subject to regulatory scrutiny, investigations, fines, and other penalties. The company’s filing acknowledges that “any particular cryptocurrency’s status as a ‘security’ is subject to a high degree of uncertainty.”
This isn’t the first time that Robinhood has come under investigation for its cryptocurrency trading and handling practices. The company has received similar subpoenas from the California Attorney General’s office about its “trading platform, business and operations, custody of customer assets, customer disclosures, and coin listings.” Robinhood states that it is cooperating with all these investigations.
Recent Enforcement Actions Against Other Crypto Companies
The SEC has recently taken action against other players in the cryptocurrency industry. In January, the agency charged cryptocurrency lender Genesis Global Capital and crypto exchange Gemini Trust, alleging that their “Earn” lending program equated to offering and selling unregistered securities. In early February, the SEC fined U.S. crypto exchange Kraken US$30 million for providing its “staking as a service” program, which the agency said was in breach of the Securities Act. Kraken subsequently shut down its staking service.
Robinhood’s troubles come as the cryptocurrency industry faces increasing scrutiny from regulators worldwide. Policymakers are concerned about the potential risks to investors and the financial system’s stability that cryptocurrencies could pose. Some countries, such as China and India, have taken steps to ban or restrict cryptocurrencies altogether.
The regulatory environment for cryptocurrencies remains to be determined, and companies operating in the space must navigate a complex landscape of rules and regulations. Robinhood’s experience serves as a reminder that even well-established players can face investigations and fines from regulators.
Robinhood’s receipt of an investigative subpoena from the SEC related to its trading and handling of cryptocurrencies highlights the increased regulatory scrutiny that the cryptocurrency industry faces. The SEC’s actions are part of a broader trend of policymakers worldwide cracking down on cryptocurrencies. Companies operating in the space must be prepared to navigate a complex and uncertain regulatory environment, and even well-established players like Robinhood can face investigations and fines.