The Securities and Exchange Commission (SEC) of the United States has sent a Wells notice to Robinhood, the popular trading platform. This news caused Robinhood’s share price to drop 2.5% in pre-market trading, reaching $17.95 as of 12:50 pm UTC. The Wells notice was issued on May 4, as stated in a court filing.
A Wells notice is a letter from the securities regulator that marks the conclusion of its investigation into the party being investigated, in this case, Robinhood’s crypto business in the US. The SEC has been looking into Robinhood’s cryptocurrency listings and crypto custodian operations and has made a “preliminary determination” to recommend that the SEC take legal action for alleged securities violations.
Despite Robinhood’s efforts to register with the US securities watchdog, the investigation was still initiated. According to Dan Gallagher, the Chief Legal, Compliance, and Corporate Affairs Officer at Robinhood Markets, Robinhood does not consider any of its listed assets as securities.
Robinhood has been actively trying to avoid securities violations. In doing so, it has chosen not to list certain tokens or offer crypto lending and staking services that the SEC has previously claimed to be securities offerings in lawsuits against other platforms. However, Robinhood’s Chief Compliance Officer acknowledges that the lack of clear federal regulations has created an unfair environment for market participants, making it challenging to comply with regulations and impeding the adoption of cryptocurrencies in mainstream finance.
In a court testimony on June 6, Gallagher, who previously served as an SEC commissioner from 2011 to 2015, highlighted the need for the SEC and the Commodity Futures Trading Commission to provide clear guidelines on what qualifies as securities and commodities in the context of digital assets.
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