Robinhood’s cryptocurrency platform has been ordered to pay a $3.9 million dollar settlement over its practice between 2018 and 2022 of not allowing customers to withdraw their crypto.
California’s Department of Justice said on Wednesday (September 4) that their investigation found Robinhood violated California’s commodities laws, “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.”
The investigation also found that Robinhood misled customers about what it offered them.
The platform claimed it would connect to multiple crypto trading platforms, acting as a broker to ensure customers always got the best price available, but this was not always true. They also claimed that customers’ crypto was held by Robinhood and failed to disclose that other platforms would sometimes hold customer’s crypto assets for extended periods.
“While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies,” said Attorney General Rob Bonta. “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.”
We are announcing a $3.9 million settlement with Robinhood for failing to allow customers to withdraw cryptocurrency from their accounts.
As CA AG, I will continue to protect investors in the marketplace.https://t.co/PguPywsG8O pic.twitter.com/uKTJMwmstJ— Rob Bonta (@AGRobBonta) September 4, 2024
Robinhood may also be in trouble with the SEC
The Securities and Exchange Commission (SEC) is in the process of determining whether Robinhood has committed securities violations.
The platform’s chief legal, compliance, and corporate affairs officer, Dan Gallagher, believes that the SEC does not have a case against them, stating “We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.”
However, this has not stopped them from continuing to expand into the crypto market, with plans to acquire the exchange Bitstamp to go ahead in the first half of 2025.
Featured image credit: Ideogram
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