SEC Warns Robinhood About Potential Enforcement Action in Crypto Crackdown

The US Securities and Exchange Commission (SEC) has issued a warning to Robinhood Markets Inc. about potential enforcement action regarding its crypto business, indicating that the regulator is continuing its crackdown on digital assets. This news comes after the SEC sent the company a Wells notice, which suggests a recommendation for enforcement action. As a result, Robinhood’s shares dropped over 2% in premarket trading.

Robinhood will have the chance to respond to the SEC’s allegations before any action is taken. Depending on their response, the SEC may back off or proceed with legal action. Robinhood’s chief legal officer expressed disappointment with the SEC’s move, asserting that they don’t believe the assets on their platform are securities. The SEC, responsible for regulating securities, declined to comment on the matter.

Under Chair Gary Gensler, the SEC has contended that most tokens are subject to its rules and that platforms where they are traded should be registered. The SEC has taken action against other well-known crypto brokerages and trading platforms, such as Coinbase Global Inc., and previously issued an investigative subpoena related to Robinhood’s cryptocurrency listings and custody.

The SEC uses a test outlined in a 1946 Supreme Court case to determine if an asset falls under its securities rules. Crypto advocates argue that many digital assets do not meet this standard and urge the SEC to develop updated rules that consider the unique characteristics of the asset class.