Robinhood is Being Investigated by SEC About Crypto Listings - Insider Dealing Charge Coming

Robinhood obtained an investigative subpoena from the US Securities and Exchange Commission (SEC) regarding its cryptocurrency listing process. The subpoena was issued in December, weeks after the collapse of the FTX exchange.

Robinhood under SEC probe

The collapse of FTX in November 2022 has increased regulatory scrutiny over the crypto industry. Since the exchange filed for bankruptcy, the SEC has filed lawsuits against several crypto firms to protect investors.

A recent 10-K filing by the SEC disclosed the investigations being conducted by the SEC targeting the operations of the popular retail trading app. In this filing, Robinhood has listed several disclosures about the potential risks of its business.

The company said the SEC investigation revolved around the exchange’s

Supported cryptocurrencies, custody of cryptocurrencies, and platform operations.

The Robinhood exchange currently supports 18 cryptocurrencies, including some of the most popular ones, such as Bitcoin, Ethereum, and Dogecoin. The platform has become very popular with retail investors because it allows them to start trading cryptocurrencies for as little as $1.

Besides the subpoena issued by the SEC, Robinhood also disclosed that it obtained a subpoena from the California Attorney General’s office. This subpoena was associated with how the trading platform custodied customer assets, handled customer disclosures, and listed coins on the exchange. The exchange has said it is complying with investigators in California.

Robinhood witnessed major growth during the COVID pandemic because its user-friendly app allows retail investors to trade stocks and cryptocurrencies such as Bitcoin.

SEC tightens noose over the crypto market after FTX collapse

The SEC has increased regulatory scrutiny over the cryptocurrency market in recent months. FTX was one of the largest players in the crypto market, and it has massive investments across the industry, including the Robinhood exchange.

One of the investments that FTX’s co-founder Sam Bankman-Fried had made was in Robinhood. Earlier last month, Robinhood announced plans to repurchase its shares from Emergent Fidelity Technologies, which Bankman-Fried owns. The exchange announced this plan as US prosecutors looked to seize these shares.

The events in the crypto industry in 2022 have led to the SEC actively looking for ways to ensure such developments do not happen again. One of the key areas of focus is cryptocurrency listings.

The chair of the SEC, Gary Gensler, has been advocating for cryptocurrencies to be regulated under the securities laws. Gensler believes that all cryptocurrencies in the market, apart from Bitcoin, passed the Howey test, making them eligible to comply with the securities laws and be under the SEC’s purview.

In January this year, the SEC sued Genesis and Gemini for selling unregistered securities. The SEC’s charges revolved around the Gemini Earn product that was shut down after Genesis halted withdrawals. The SEC recently fined Kraken $30 million and ordered the exchange to halt crypto staking services as they violated securities laws.

However, the crypto market has decried these actions being taken by the SEC, with complaints that the regulator was regulating the industry through enforcement.

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