Robinhood to Pay $3.9M as Settlement Over Crypto Withdrawal Restrictions

The California Department of Justice has announced a $3.9 million settlement with Robinhood, for violating state commodities law by prohibiting customers from withdrawing crypto from their accounts between 2018 and 2022.

We are announcing a $3.9 million settlement with Robinhood for failing to allow customers to withdraw cryptocurrency from their accounts.

As CA AG, I will continue to protect investors in the marketplace.https://t.co/PguPywsG8O pic.twitter.com/uKTJMwmstJ

— Rob Bonta (@AGRobBonta) September 4, 2024

The settlement resolves an investigation into Robinhood’s past practices including the company’s lack of transparency in managing trades and handling orders.

Robinhood Agrees to $3.9M Settlement

According to California Attorney General Rob Bonta, Robinhood sold commodities contracts in violation of state law by allowing customers to purchase crypto without delivering the assets. During the period in question, customers were unable to withdraw their cryptos and had to sell them back to the company to exit the platform.

Additionally, he accused the firm of deceiving customers about its trading practices by making false claims about better pricing cryptocurrency storage and trade execution.

“Our investigation and settlement with Robinhood should send a strong message: Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws,” Bonta said.

Per the settlement, Robinhood is obligated to abide by legal requirements and permit customers to withdraw their cryptocurrency holdings to external wallets. Additionally, the trading app must ensure its statements to customers accurately describe its trading practices, especially regarding order routing and crypto transaction pricing.

In response, Lucas Moskowitz, Robinhood Markets’ general counsel, said they are happy to resolve the issue and will focus on making crypto more accessible.

Meanwhile, this is the state’s first significant public enforcement action against a cryptocurrency company, taken by the California Department of Justice.

Robinhood Regulatory Woes

Robinhood’s latest regulatory challenge is not the first. In 2020, the SEC fined the company $65m for misleading customers about its revenue sources and failing to execute orders at the best prices.

The agency accused the firm of frequently preventing customers from obtaining the best trade prices by selling market makers’ customer orders at exorbitant prices.

Earlier this year, the financial watchdog issued a Wells Notice to Robinhood, revealing the intent of an enforcement action.

Meanwhile, Robinhood’s stock, HOOD, has declined slightly by 1.34% following the news. Data from TradingView shows the asset was trading at $19.11 at the time of writing.