Robinhood has agreed to pay the state of California $3.9 million for reportedly misleading investors about how it handles crypto trades and investments on its platform.
The agreement, which follows an investigation into Robinhood Crypto's practices between 2018 and 2022, marks the first public action taken by California’s Department of Justice against a cryptocurrency company.
The settlement, announced by Attorney General Rob Bonta, resolves allegations that the cryptocurrency platform violated state consumer protection laws by restricting users from withdrawing their cryptocurrency and failing to fully disclose how it handled trades and orders.
“While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies,” Bonta said in a statement. He emphasized the importance of adhering to state regulations, noting, “Whether you're a brick-and-mortar store or a cryptocurrency company, you must adhere to California's consumer and investor protection laws.”
The investigation, conducted by the the state's justice department, found Robinhood sold commodities contracts that violated California's Commodities Law when it allowed customers to purchase cryptocurrencies without delivering the assets. From 2018 to 2022, customers who made trades through Robinhood were unable to actually withdraw their cryptocurrency holdings and were required to sell them back to Robinhood in order to exit the platform.
The Department also concluded that Robinhood made material misrepresentations regarding its trading practices. Through its advertisements, the retail investment giant said that it connected to multiple trading venues to offer competitive prices – a claim that was not always accurate.
Additionally, Robinhood failed to disclose that, in some instances, it arranged for external venues to hold customer assets for extended periods, contrary to the company’s assurances that it maintained custody of all customer-held cryptocurrencies.
Under the terms of the settlement, Robinhood must now allow customers to transfer their cryptocurrency to external wallets. The company is also required to provide transparent disclosures about its trading and order handling practices and to inform customers about any delays in transactions lasting more than one week.
Robinhood's crypto business has also been the subject of scrutiny by the SEC. In May, the firm revealed it received an SEC Wells notice with an initial determination to recommend enforcement action. CEO Vlad Tenev said last month that it's continuing to engage with the federal regulator, vowing to "[make] sure that [its] response is as high-quality as possible."
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