Robinhood found itself in hot water with the United States Securities and Exchange Commission (SEC) this weekend after the digital asset trading platform reportedly received a Wells Notice from the federal agency as part of its crypto regulation crackdown.

Robinhood Receives Wells Notice From SEC Over Crypto Operations

“On May 4, 2024, RHC received a “Wells Notice” from the Staff of the SEC (the “Staff”) stating that the Staff has advised RHC that it made a “preliminary determination” to recommend that the SEC file an enforcement action against RHC alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, as amended,” Robinhood stated in a Monday court filing.

A Wells Notice, given out by the SEC to warn a given entity that the federal regulator has cause to file an enforcement action against it, can signify immense legal trouble for companies in the crypto sector.

The SEC just sent a Wells notice to Robinhood.

The number they’ve sent about crypto in recent months is astonishing. It’s hard to imagine that they would (or could) bring so many enforcement actions at once.

It seems like they’re abusing the Wells process as a scare tactic now.

— Jake Chervinsky (@jchervinsky) May 6, 2024

In addition to the Wells Notice, court documents show that the Silicon Valley-based crypto company has received a number of “investigative subpoenas” from the U.S. regulator in the past, including regarding its “cryptocurrency listings, custody of cryptocurrencies, and platform operation.”

“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business,” Robinhood Chief Legal Compliance and Corporate Officer Dan Gallagher said. “We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.” 

The SEC Cracks Down On Crypto Regulation

Following the news, Robhinhood’s stock plummeted over 5%, sparking concern among investors.

News of its regulatory discipline comes at a critical time for Robinhood, with the company set to debut its first-quarter results on Wednesday.

The SEC, chaired by the controversial Gary Gensler, has come under scrutiny in the past for its regulation-by-enforcement approach toward digital assets.

Last month, the commission filed a Wells Notice against Consensys for allegedly operating as an unregistered securities broker through its Ethereum-focused application, MetaMask.

While it is unclear what exactly prompted the SEC to notify Robinhood of a potential enforcement action, the crypto company’s newest court filing suggests it may take the form of “civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding.”

The SEC’s warning to Robinhood marks the latest in a string of Wells Notices sent to businesses in the crypto sector and may signal a crackdown on digital asset regulation in the coming months.

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