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SEC Is after Robinhood’s Crypto Listings

by Arnab Shome
  • The crypto arm of Robinhood received a subpoena from the SEC last December.
  • The regulatory interest came after a series of collapses in the crypto industry.
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American commission-free broker, Robinhood Markets Inc (Nasdaq: HOOD), revealed in a filing on Monday that it received an investigative subpoena from the US securities regulator over inquiries around cryptocurrency listings.

Robinhood Received Subpoena from the SEC

The subpoena was issued last December, and its primary purpose was to know the operations of Robinhood’s crypto arm. Apart from crypto listing details, the subpoena sought information about the custody of cryptocurrencies and platform operations.

“We received an investigative subpoena from the SEC regarding, among other topics, RHC’s cryptocurrency listings, custody of cryptocurrencies, and platform operations,” the 10-K filing of the broker stated.

A court issues an investigative subpoena at the request of another person or an organization. The purpose of such a subpoena is to extract information and evaluate the viability of a possible legal action against the party in question.

An Aftermath of Crypto Industry Collapses

The subpoena against Robinhood came in the aftermath of the FTX collapse. The misdeeds of Sam Bankman-Fried and the exposure of the industry to his companies resulted in a series of bankruptcies. The FTX fiasco came when the crypto industry was still reeling from the impact of the collapse of Terra-Luna and Three Arrows Capital earlier last year.

Robinhood moved into cryptocurrency trading in 2018 when retail demand for digital assets soared globally. It rose in popularity over other American crypto exchanges for offering meme tokens, along with Bitcoin and other top cryptocurrencies. Soon, the broker starts generating a significant portion of its transactional revenue from cryptocurrencies. However, this the demand is shrinking.

In the fourth quarter of 2020, revenue from cryptocurrency trading took a massive hit as it declined to $39 million, which is a 24 percent fall from the third quarter due to lower crypto trading volumes. It was the second consecutive quarter exhibiting a decline in crypto revenue, as the figure also dropped 12 percent in Q3.

Robinhood also has ties with Bankman-Fried, who purchased 7.6 percent of the company last year. Robonhood’s board approved repurchasing all of these shares controlled by Bankman-Fried, who is facing criminal charges in the US.

Meanwhile, the latest SEC subpoena was not the first inquiry faced by Robinhood Crypto LLC. It received a subpoena from the California Attorney General’s Office in April 2021 seeking similar information. Furthermore, it faced scrutiny from the Massachusetts Securities Division in August 2021 for allegedly targeting inexperienced traders.

Last August, the New York District of Financial Services (NYDFS) slapped a $30 million monetary penalty on Robinhood’s crypto division for failure to “invest the proper resources and attention to develop and maintain a culture of compliance.”

American commission-free broker, Robinhood Markets Inc (Nasdaq: HOOD), revealed in a filing on Monday that it received an investigative subpoena from the US securities regulator over inquiries around cryptocurrency listings.

Robinhood Received Subpoena from the SEC

The subpoena was issued last December, and its primary purpose was to know the operations of Robinhood’s crypto arm. Apart from crypto listing details, the subpoena sought information about the custody of cryptocurrencies and platform operations.

“We received an investigative subpoena from the SEC regarding, among other topics, RHC’s cryptocurrency listings, custody of cryptocurrencies, and platform operations,” the 10-K filing of the broker stated.

A court issues an investigative subpoena at the request of another person or an organization. The purpose of such a subpoena is to extract information and evaluate the viability of a possible legal action against the party in question.

An Aftermath of Crypto Industry Collapses

The subpoena against Robinhood came in the aftermath of the FTX collapse. The misdeeds of Sam Bankman-Fried and the exposure of the industry to his companies resulted in a series of bankruptcies. The FTX fiasco came when the crypto industry was still reeling from the impact of the collapse of Terra-Luna and Three Arrows Capital earlier last year.

Robinhood moved into cryptocurrency trading in 2018 when retail demand for digital assets soared globally. It rose in popularity over other American crypto exchanges for offering meme tokens, along with Bitcoin and other top cryptocurrencies. Soon, the broker starts generating a significant portion of its transactional revenue from cryptocurrencies. However, this the demand is shrinking.

In the fourth quarter of 2020, revenue from cryptocurrency trading took a massive hit as it declined to $39 million, which is a 24 percent fall from the third quarter due to lower crypto trading volumes. It was the second consecutive quarter exhibiting a decline in crypto revenue, as the figure also dropped 12 percent in Q3.

Robinhood also has ties with Bankman-Fried, who purchased 7.6 percent of the company last year. Robonhood’s board approved repurchasing all of these shares controlled by Bankman-Fried, who is facing criminal charges in the US.

Meanwhile, the latest SEC subpoena was not the first inquiry faced by Robinhood Crypto LLC. It received a subpoena from the California Attorney General’s Office in April 2021 seeking similar information. Furthermore, it faced scrutiny from the Massachusetts Securities Division in August 2021 for allegedly targeting inexperienced traders.

Last August, the New York District of Financial Services (NYDFS) slapped a $30 million monetary penalty on Robinhood’s crypto division for failure to “invest the proper resources and attention to develop and maintain a culture of compliance.”

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