The US Securities and Exchange Commission (SEC) has issued a Wells Notice to Robinhood’s crypto business for its alleged violation of federal securities laws, according to a filing.
Robinhood could join Uniswap Labs and Consensys in the legal fight against the securities agency.
The filing states that the SEC staff has made a preliminary decision to recommend enforcement action against its cryptocurrency trading service provider for alleged violations. Articles 15(a) and 17A of the Securities Law of 1934.
Robinhood Will Fight Back
Robinhood’s Chief Legal Officer (CLO), Compliance and Corporate Affairs, Dan Gallagher, said the company had cooperated with the SEC for years. Despite that, the SEC chose to issue the Wells Notice.
“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our US crypto business,” said Gallagher.
He noted, however, that cryptocurrencies listed on Robinhood’s platform are not securities, which is the SEC’s main claim. He added that the company still wanted to work with the SEC to clarify “how weak any case against Robinhood Crypto would be on both the facts and the law.”
Following the SEC’s legal lawsuits targeting two major crypto exchanges, Coinbase and Binance, Robinhood announced the delisting of Solana (SOL), Polygon (MATIC) and Cardano (ADA) – three cryptocurrencies are alleged securities.
The SEC Casts A Wide Net
Robinhood Markets is a financial trading leader in the US. The company is reportedly the world’s third-largest Bitcoin holder, with an estimate of 118,300 BTC.
A Wells Notice is a formal notification from the SEC to a company that it may pursue legal action, including lawsuits, civil penalties, or proceedings to revoke licenses or registrations.
Robinhood is not the only entity that has been served with a Wells Notice. In less than two months, the SEC made headlines for its legal warning against a number of crypto firms, including Uniswap Labs and Consensys.
Last month, Uniswap Labs, the team behind the leading decentralized exchange Uniswap, said it received a Wells Notice from the SEC. Uniswap’s founder, Hayden Adams, responded with frustration, stating he was “not surprised, just annoyed, disappointed, but still ready to fight back.”
Adam also expressed confidence in the legality of Uniswap and criticized the SEC’s approach. He argued that instead of lawsuits, the SEC should focus on creating clear regulations for the crypto industry, referencing companies like Coinbase and Uniswap that have faced similar legal actions.
In the same month, blockchain infrastructure company Consensys, the developer of MetaMask wallet, Linea layer-2, and Infura services, also received a Wells Notice from the SEC. In response to the legal threat, Consensys initiated a lawsuit challenging the SEC’s classification of Ethereum (ETH) as a security.
Offshore Options Looking Better
Like previous cases, the SEC’s recent notice to Robinhood has sparked controversy among the crypto members. Jake Chervinsky, CLO of Variant Fund, is critical of the SEC’s approach to crypto regulation.
In a series of tweets on X, Chervinsky suspects the SEC might be misusing the Wells Notice process. A Wells Notice is meant to inform a company of potential legal action, but it appears thar the SEC might be using it more as a scare tactic to pressure companies without a real intention of following through with lawsuits.
Chervinsky argues the SEC dedicates too many resources to regulating cryptocurrency. This focus on crypto takes away from the SEC’s ability to fulfill its core mission: to regulate traditional financial markets like stocks and bonds.
Under SEC Chair Gary Gensler, the commission has brought enforcement actions against several major crypto firms, including troubled firms like FTX, Genesis, and Terraform Labs. These actions have sparked debate, with some crypto industry participants arguing that the SEC’s interventions came after these firms’ collapses, leaving investors without recourse.
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