Robinhood’s crypto division received a Wells Notice from the US Securities and Exchange Commission (SEC) on May 4.
According to a May 8 filing, the Gary Gensler-led Commission staff had been investigating Robinhood’s “cryptocurrency listings, custody of cryptocurrencies and platform operations” for some time before recommending an enforcement action against it.
Dan Gallagher, chief legal officer at Robinhood Markets, said the company was “disappointed” with the SEC after its failed attempts to register with the regulator. He added:
“We strongly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to clarify how weak a case against Robinhood Crypto would be, both on the facts and of the law.”
Robinhood is a US-based digital trading app that previously delisted major cryptocurrencies such as Cardano, Polygon and Solana after the SEC classified them as securities in a lawsuit against Coinbase and Binance.
Wells notice
The notice against Robinhood is the latest in the SEC’s ongoing investigation into crypto-related entities.
Last month, the SEC sent Uniswap a Wells Notice. DEX founder Hayden Adams criticized the regulator’s approach, saying it had “targeted established actors like Uniswap and Coinbase, while overlooking the malpractices of entities like FTX.”
Similarly, Consensys received a Wells Notice from the SEC during the same period. In response, the cryptocurrency-focused company has opted to take legal action against the SEC, arguing that categorizing ETH as a security would hinder the growth and use of Ethereum and other blockchain technologies in the US.
‘Scare tactic’
Several crypto stakeholders have criticized the SEC for this latest regulatory action against Robinhood.
Jake Chervisnky, chief legal officer at Variant Fund, said the SEC was abusing the Wells process as it now appears to be using the tool as a “scare tactic.”
According to to him:
“If the SEC takes as many enforcement actions as it has sent Wells notices, it will be in flagrant violation of both the law and Congress’ mandate. If not, the Wells process is clearly being abused to obtain unfettered discovery and terrorize leading American companies.”
Meanwhile, Adam Cochran argued that the SEC’s actions were pushed to prevent new crypto startups.
He added that Gensler has no intention of winning the cases as he is only focused on making an impression on the headlines.[Elizabeth Warren] enough that he will get a seat in the Treasury if Biden is re-elected, or be kicked out if Trump wins.”