SEC Prepares to Sue Robinhood Over Trading of Certain Crypto Assets

An all too familiar scene: The US Securities and Exchange Commission (SEC) issues a Wells Notice to a company having dealings in crypto. This time around it’s Robinhood that receives the notice, which usually precedes legal action.

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As the Wall Street Journal reports, the SEC issued the notice over the weekend for allegedly violating securities laws in relation to ‘certain’ digital assets being traded on the Robinhood platform. The notice is preliminary and only highlights that the watchdog intends legal action, not that a final decision has been made.

Robinhood management expressed their disappointment, and like many before, lamented the lack of SEC engagement. Countless companies before, like Ripple, Coinbase and others have said they sought to work with the SEC to ensure legal compliance but the regulator has remained vague.

Former SEC Official on Robinhood’s Side

Dan Gallagher, the chief legal officer at Robinhood said:

We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.

Dan Gallagher, Robinhood CLO

Gallagher served as SEC Commissioner from 2011 to 2015 and prior to that was employed in numerous other positions by the agency.

It isn’t immediately clear which assets the SEC is targeting but if suing it may seek to stop Robinhood from allowing US customers to access crypto-related products.

Vlad Tenev, CEO and co-founder of Robinhood, criticised the SEC’s regulatory actions, particularly against cryptocurrency, along with what he called new rules on predictive data analytics. He said these actions have been stifling innovation and negatively impacting American businesses and consumers.

CFTC Chair Predicts More Legal Action Looming

Meanwhile, Rostin Behnam, the chair of the US Commodity Futures Trading Commission (CFTC), expects more enforcement action may be on the cards. During a panel discussion at a Milken Institute annual conference Behnam said he expects “another cycle of enforcement actions” due to a lack of a regulatory framework.

From my standpoint as a regulator, we’re going to probably see in the next six to 18 months or six to 24 months, another cycle of enforcement actions because of this cycle of asset appreciation and interest by retail investors. Without a regulatory framework, without that transparency, without those tools that we typically use as regulators, you’re going to continue to see this fraud and manipulation.

Rostin Behnam, CFTC chair

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Pressed on the issue of a stablecoin bill, Behnam expressed scepticism about the likelihood of passing such a bill soon due to limited legislative days and challenges in enacting legislation.

Additionally, a key obstacle in the process has been determining whether stablecoin issuers should be regulated by federal or state authorities, the CFTC chair added.