Robinhood Markets Inc., the popular stock trading app, has recently received a Wells notice from the US Securities and Exchange Commission (SEC).

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The notice indicates that the SEC is preparing for a potential enforcement action against Robinhood’s crypto business. Let’s dive into the details:

Wells Notice and Enforcement Action

The SEC’s enforcement staff sent Robinhood a Wells notice, signaling their initial determination to recommend enforcement action.

This notice is a formal warning that the regulator is scrutinizing Robinhood’s crypto operations. Robinhood’s shares fell more than 2% in premarket trading following the disclosure of the Wells notice.

The company now has the opportunity to respond to the SEC’s allegations before any action is taken. Sometimes, a convincing response can lead the SEC to reconsider. If the SEC remains unsatisfied, it can proceed to sue or settle with Robinhood to resolve the probe.

Robinhood’s Stance

Dan Gallagher, Robinhood’s chief legal officer, expressed disappointment over the SEC’s move. He firmly believes that the assets listed on Robinhood’s platform are not securities.

However, the SEC’s jurisdiction covers assets that qualify as securities, and they have been consistent in their stance that most tokens fall under their regulatory purview.

8Robinhood’s crypto business has faced scrutiny over listings, custody practices, and platform functionality.

SEC’s Position on Crypto

Under Chair Gary Gensler, the SEC has been actively regulating the crypto space. They argue that most tokens are subject to SEC rules. The agency believes that platforms where these tokens trade should be registered with the SEC.

The SEC has previously taken action against other high-profile crypto brokerages and trading platforms, including Coinbase Global Inc.

Unique Characteristics of Digital Assets

Crypto advocates argue that many digital assets don’t fit the traditional securities definition. They call for revised rules that consider the unique characteristics of the crypto asset class.

The SEC relies on a test laid out in a 1946 Supreme Court case to determine whether an asset is covered by its securities rules.

Reference:

https://www.benzinga.com/government/24/05/38647248/sec-nudges-robinhood-over-crypto-operations