California Attorney General Rob Bonta announced a $3.9 million settlement with crypto trading platform Robinhood Crypto, LLC for failing to allow customers to withdraw their cryptocurrency from their Robinhood accounts from 2018 to 2022, and for “failing to fully disclose aspects of its trading and order handling arrangements.”
The settlement resolves the investigation into Robinhood’s (Nasdaq: HOOD) violation of the California Commodities Law (CCL) and “includes a $3.9 million penalty and strong conduct requirements. ”
Attorney General Bonta said:
“While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies. Our investigation and settlement with Robinhood should send a strong message: Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws. I am dedicated to using all the tools available to my office to protect California consumers in the face of advancing technology in the marketplace.”
Robinhood operates a trading platform to buy and sell cryptocurrencies such as Bitcoin.
The investigation into Robinhood resulted “from consumer complaints of questionable behavior in the cryptocurrency industry.”
The investigation by the California Department of Justice concluded that Robinhood “sold commodities contracts in violation of the CCL by allowing customers, who hoped their investment would become more valuable shortly, to buy cryptocurrencies without actually delivering these assets to customers.”
During that period, customers could “not withdraw their cryptocurrency and were forced to sell it back to Robinhood to exit the trading platform.”
Robinhood misled customers by advertising it would “connect to multiple trading venues, to ensure customers receive the most competitive prices between the venues, which was not always true.”
Robinhood also represented to its customers that Robinhood itself held all its customers’ cryptocurrencies “purchased through Robinhood’s platform.”
Despite these assurances, Robinhood did “not tell customers that there were instances in which it arranged for trading venues to hold customer assets for extended periods.”
In addition to the $3.9 million penalty, under the settlement Robinhood must:
- Permit customers to withdraw their cryptocurrency assets from Robinhood to their own cryptocurrency wallets.
- Ensure that its written representations to customers about its trading and order handling practices materially comport with such practices, including the routing of orders to trading venues, and cryptocurrency purchase and sale prices.
- Make clear to customers that Robinhood will custody cryptocurrency that customers own, update its Customer Agreement to disclose that it may delay settlement with trading venues in the event of an incident that raises concerns about a cryptocurrency asset’s network security, and disclose to our office any incident that results in delayed settlement for longer than one week.
