The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. regarding potential enforcement action related to its cryptocurrency business, indicating that the SEC is continuing its crackdown on digital assets. This follows a Wells notice sent by the SEC’s enforcement staff, suggesting that enforcement action may be recommended. As a result, Robinhood’s shares dropped over 2% in premarket trading.
The SEC has claimed that most tokens fall under its rules and that platforms where they are traded should be registered with the agency. The regulator has taken action against other prominent crypto brokerages and trading platforms, such as Coinbase Global Inc. Robinhood had previously disclosed that it received an investigative subpoena related to its cryptocurrency listings and custody.
To determine if an asset falls under securities rules, the SEC follows a test outlined by a 1946 Supreme Court case. Crypto advocates argue that many digital assets do not meet this standard and that the SEC should develop revised rules to account for the unique characteristics of the asset class.
Before taking any action, Robinhood will have the opportunity to respond to the allegations. In some cases, the response can persuade the SEC to reconsider. If not, the regulator may sue or settle with Robinhood to resolve the matter. Robinhood’s chief legal officer expressed disappointment in the SEC’s move, stating that the assets listed on the platform are not considered securities by the company.
