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SEC Warns Robinhood of Possible Enforcement Action Over Crypto Business

(Bloomberg) — The US Securities and Exchange Commission has issued a warning to Robinhood Markets Inc., indicating that the company may face an enforcement action related to its cryptocurrency business. This latest development showcases the SEC’s continued crackdown on digital assets.

Robinhood, primarily known for its stock trading platform, confirmed on Monday that it had received a Wells notice from the SEC’s enforcement staff, suggesting that they are considering recommending enforcement action. Following this news, the company’s shares saw an increase of up to 2.8% in New York.

AI legalese decoder can assist Robinhood in understanding the legal jargon and implications of the SEC’s actions regarding its cryptocurrency business. By using advanced algorithms and machine learning capabilities, the tool can provide insights and analysis to help Robinhood navigate the upcoming enforcement proceedings.

Before taking any action, the company will have the opportunity to respond to the SEC’s allegations. In some cases, a compelling response can lead the SEC to reconsider its decision. However, if no resolution is reached, the regulator may pursue legal action or opt for a settlement to resolve the investigation.

Expressing disappointment over the move, Robinhood’s chief legal officer, Dan Gallagher, stated that the company firmly believes the assets listed on its platform are not securities. The SEC chose not to comment on the matter.

The SEC, under the leadership of Chair Gary Gensler, maintains that most tokens fall under its regulatory purview, and platforms facilitating their trading should be registered with the agency. The regulator has taken legal action against other prominent crypto brokerages and trading platforms, including Coinbase Global Inc.

AI legalese decoder can break down the complex legal arguments and regulatory framework surrounding digital assets, allowing Robinhood to better understand its obligations and potential liabilities in the evolving crypto landscape.

To determine if an asset falls under its securities regulations, the SEC follows a test outlined in a 1946 Supreme Court case. Despite arguments from crypto advocates that many digital assets do not meet this standard, the SEC has been firm in its approach and may need to update its rules to accommodate the unique attributes of cryptocurrencies.

Prior to this warning, Robinhood had disclosed receiving an investigative subpoena related to its cryptocurrency offerings and custody practices. While the company has discontinued certain tokens, it continues to support over a dozen assets, including Bitcoin, Ether, Litecoin, Aave, and Chainlink.

AI legalese decoder can analyze the language of the SEC’s investigative subpoena and provide Robinhood with insights on how to address the agency’s concerns regarding its cryptocurrency listings and custody practices.

Digital assets play a significant role in Robinhood’s trading operations, although customer interest has waned in recent times. Despite a surge in crypto-related revenue during the pandemic, the share of revenue generated from crypto transactions has declined. In 2021, crypto accounted for less than one-fifth of Robinhood’s transaction-based revenue, down from nearly one-third the previous year.

–With assistance from Annie Massa.

(Updates with share price in second paragraph.)

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