US SEC Slams Robinhood Crypto With Wells Notice

The United States Securities and Exchange Commission (SEC) has issued a Wells Notice to the cryptocurrency trading arm of financial services company Robinhood, revealing the intent of an enforcement action.

According to a Form 8-K filing by Robinhood, the crypto arm received the notice on May 4. The SEC alleges that Robinhood Crypto violated Sections 15(a) and 17A of the amended Securities Exchange Act of 1934.

Robinhood Crypto Receives Wells Notice

A Wells Notice is a preliminary warning the SEC issues to inform companies of its intention to bring enforcement action against their businesses. 

Robinhood disclosed that it received investigative subpoenas from the SEC earlier regarding its crypto asset listings, custody, and platform operations. While the company has cooperated with the SEC in its investigation, any enforcement action following the Wells notice may involve civil money penalties, activities limitations, public administrative proceedings, a civil injunctive action, or a cease and desist order.

Notably, Robinhood Crypto ended support for several assets, including Cardano (ADA), Polygon (MATIC), and Solana (SOL), after the SEC named the cryptocurrencies as securities in lawsuits brought against crypto exchanges Binance and Coinbase in June 2023.

HOOD Slumps 3%

The SEC’s latest move against Robinhood Crypto has drawn several reactions from market participants. Robinhood’s chief legal officer, Dan Gallagher, expressed his disappointment in the notice served despite years of working with the agency for regulatory clarity and attempts to register its operations. Regardless, he insisted that the crypto assets listed on Robinhood are not securities.

Jake Chervinsky, chief legal officer of crypto venture capital firm Variant Fund, said the SEC seems to be abusing the Wells process as a scare tactic because the agency has sent the notice to crypto firms an “astonishing” number of times in recent months. Last month, the securities regulator sent the same notice to the decentralized crypto exchange Uniswap.

“The SEC allocates a grossly disproportionate amount of its resources to crypto, given that its actual purpose is to regulate equity and debt markets. Every minute and taxpayer dollar spent on crypto is one not spent on the real mission that Congress created the SEC to pursue,” Chervinsky stated.

Meanwhile, Robinhood’s stock, HOOD, has slumped roughly 3% since news of the Wells Notice emerged. Data from TradingView shows the asset was trading at $17.90 at the time of writing, down from its daily high of $18.43.