The United States Securities and Exchange Commission (SEC) has given Robinhood Markets Inc. a warning about potential enforcement action concerning its cryptocurrency business. This move by the regulator indicates that it is continuing its crackdown on digital assets. Robinhood, known for stock trading, stated that the SEC’s enforcement staff sent the company a Wells notice, which suggests a recommendation for enforcement action. As a result, the company’s shares dropped over 2% in premarket trading.
The SEC has given Robinhood an opportunity to respond to its allegations before any legal action is taken. If Robinhood responds positively, the SEC may back off or proceed with legal action. The chief legal officer of Robinhood expressed disappointment in the SEC’s decision and asserted that they believe the assets on their platform are not securities. However, the SEC remained silent on the matter and did not comment on it.
Under Chair Gary Gensler, the SEC has maintained that most tokens are subject to its rules and that platforms where they are traded should be registered. The SEC has previously taken action against well-known crypto brokerages and trading platforms such as Coinbase Global Inc., and Robinhood had previously been issued an investigative subpoena related to its cryptocurrency listings and custody.
To determine whether an asset falls under its securities rules, the SEC employs a test outlined in a 1946 Supreme Court case. Crypto advocates argue that many digital assets do not meet this standard and urge the SEC to develop updated rules that take into account the unique characteristics of this asset class.