On May 6, 2024, Robinhood announced that its crypto unit (Robinhood Crypto) received a Wells Notice from the SEC on May 4, 2024. According to MarketWatch, Robinhood’s stock price dropped more than 9% following the public disclosure of the Wells Notice.
Robinhood further disclosed that the Wells Notice was related to an investigation that was previously disclosed at the end of February, due to receipt of subpoenas related to its crypto operations. If your company received a Wells Notice or a subpoena, you should retain a SEC Regulatory Defense law firm, like Malecki Law in New York, to communicate directly with the SEC on your behalf.
According to CNBC, Robinhood’s disclosure of receipt of the Wells Notice further indicated that the SEC believes it violated both Sections 15(a) and 17A of the Securities Exchange Act of 1934. More specifically, it appears that the SEC believes digital assets offered on the Robinhood Crypto platform qualify as securities, and therefore should have been registered with the SEC. However, it is unclear which digital assets are in question, or if the SEC is simply targeting all digital assets offered on the platform.
When a company receives a Wells Notice from the SEC, it usually means that the SEC has investigated the company and plans on bringing an enforcement action against the company for violations it believes occurred. Sending a Wells Notice is a way in which the SEC can put a company on notice of potential enforcement actions, however, it is not a required procedure. Click here to learn more about Wells Notices. If you received a Wells Notice, you need to consult a New York SEC Regulatory Defense attorney, like the attorneys at Malecki Law.
Robinhood’s Chief Legal and Compliance Officer, Dan Gallagher, indicated Robinhood’s confidence that the crypto-related assets on its platform are not considered securities. Mr. Gallagher further stated that they “look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be.” Further echoing this sentiment, Robinhood’s CEO, Vlad Tenev, posted the following on X: “If necessary we will use our resources to contest this matter in the courts.” Click here for the related Reuters article. Based on the foregoing, Robinhood seems like it is ready and willing to fight the SEC. If you find yourself in a potential battle with the SEC, you can reach out to a SEC Regulatory Defense lawyer in New York, like the lawyers at Malecki Law, for a free consultation.
In 2023, the SEC sued Coinbase for similar allegations, that it believed Coinbase was conducting an unregistered securities exchange. According to its press release, the SEC alleged that Coinbase “made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities,” and that the company’s “failure to register has deprived investors of significant protections…” This case is still ongoing.
It is Coinbase’s contention that the SEC has “overstepped” its authority, which is granted by Congress. On March 27, 2024, U.S. District Court Judge Katherine Polk Failla ruled on a motion for judgment on the pleadings, in which the Judge seemingly reasoned with the SEC’s long history and indicated that the “…the cryptocurrency industry “falls far short of being a ‘portion of the American economy’ bearing ‘vast economic and political significance.’” Further, the Judge decided that the issue of whether Coinbase “engaged in unregistered sales of securities could be heard by a jury…” The SEC may have won this battle, but who wins the war is to be seen. This will be a case to watch closely for the crypto community, as to the SEC’s reach, how the Howey test is applied to digital assets, and what it means for other crypto based platforms/firms going forward, like Robinhood. If you have whistleblower information on Robinhood or Coinbase and you are unsure whether your firm’s digital assets would be considered securities under the Howey test, you need to reach out to a New York SEC Regulatory Defense law firm, like Malecki Law, to help you file a TCR Whistleblower complaint.
Contributions by Jacqueline N. Candella, Associate at Malecki Law