Robinhood Subpoenaed By SEC Over Crypto Listing, Custody Issues

Robinhood Markets Inc. has disclosed that the U.S. Securities and Exchange Commission (SEC) issued it an investigative subpoena in December 2022 regarding its crypto listings and custody issues.

In a regulatory filing Monday, the brokerage said it received the said subpoena shortly after the crypto empire founded by the disgraced crypto mogul Sam Bankman-Fried along with over 100 of its affiliates filed for Chapter 11 bankruptcy protection, propelling a wave of regulatory investigations.

The subpoena issued by the financial regulator is about the crypto broker's "cryptocurrency listings, custody of cryptocurrencies, and platform operations."

Robinhood is an American financial services company that "facilitates commission-free trades of stocks, exchange-traded funds and cryptocurrencies as well as individual retirement accounts via a mobile app." It allows users to trade cryptocurrencies like Bitcoin, Ethereum, Dogecoin, Shiba Inu tokens and several others.

While the company benefited from crypto investments during the pandemic, the level of enthusiasm slowly died down due to a series of high-profile collapses and the shutdown of a wide range of crypto businesses and enterprises this year.

In February, Robinhood announced that it received approval from its board of directors on the repurchase of its shares from Bankman-Fried's Emergent Fidelity Technologies amid U.S. prosecutors' attempt to seize the shares tied to the embattled former FTX CEO.

The court typically issues investigative subpoenas at the request of an agency, a person, or, an entity so they could obtain the necessary information or details and decide whether they should pursue legal action against the person or entity which received the subpoena.

It is worth noting that this is not the first time Robinhood received a subpoena about its cryptocurrency operations.

In April 2021, the California Attorney General's Office issued subpoenas to Robinhood about its crypto business, operations, trading platform, coin listings and custody of custom assets. In August of that year, the Massachusetts Securities Division also scrutinized the brokerage company for allegedly targeting inexperienced investors.

In August 2022, the New York State Department of Financial Services (NYDFS) fined Robinhood $30 million for failing to "invest the proper resources and attention to develop and maintain a culture of compliance."

If the SEC rules that Robinhood violated financial regulations, it could be forced to stop cryptocurrency trading, which could result in regulatory penalties and administrative or judicial sanctions. It could also have a sweeping impact on the cryptocurrency industry.