It was disclosed on Thursday that Robinhood, a cryptocurrency trading platform, reached a $3.9 million settlement with California after an investigation into its practices from 2018 to 2022.
This was announced by California Attorney General Rob Bonta on Wednesday. This is the first public action by Bonta’s office against a cryptocurrency company.
Bonta claimed that Robinhood violated California’s law by failing to deliver the cryptocurrencies its customers bought.
This situation leaves individuals unable to access their assets, compelling them to sell their holdings in order to leave the platform.
The attorney general sanctioned Robinhood for misleading customers about the whereabouts of their crypto assets and falsely advertising that it would connect customers to multiple trading venues, ensuring they got competitive prices.
Department of Justice Fines Robinhood $3.9 Million Over Unpaid Crypto Assets
The settlement includes a $3.9 million penalty and mandates Robinhood to implement significant changes to its operations with immediate effect.
The company must allow customers to withdraw their crypto assets to external wallets and ensure that there is great communication on trading practices that align with reality.
Robinhood is also required to clarify the custody of customer cryptocurrencies and notify California’s Department of Justice of any security concerns or incidents that result in delayed settlements.
SEC issues warning to Robinhood and Other Firms
The settlement comes as Robinhood faces additional charges from the U.S. Securities and Exchange Commission (SEC), which stated its intention to pursue legal action for alleged breaches of federal securities laws in May 2024.
Robinhood disclosed in a regulatory filing,
On May 4, 2024, Robinhood Crypto (RHC) received a ‘Wells Notice’ from the SEC staff, indicating that they have made a preliminary decision to recommend that the SEC initiate an enforcement action against RHC for alleged violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, as amended.
The SEC’s recent actions are consistent with its approach toward other cryptocurrency exchanges, such as Coinbase and Binance.
It highlights the intensified scrutiny faced by platforms in the digital asset industry and the ongoing legal battles between regulators and industry participants.
Robinhood Promises to Change Its Methods, Agrees to Pay Fine
During the investigation, Robinhood did not admit or deny the accusations.
Lucas Moskowitz, Robinhood’s general counsel, stated that the company, based in Menlo Park, California, was pleased to settle and anticipated making cryptocurrency “more accessible and affordable for everyone.”
In a different statement, Attorney General Bonta stated,
Although cryptocurrency is relatively new, California’s robust consumer protection laws are designed to guard residents from misrepresentation, including by cryptocurrency firms. Our investigation and settlement with Robinhood should serve as a clear reminder: whether you operate a physical store or a cryptocurrency company, you must comply with California’s consumer and investor protection regulations.
