Robinhood
is
the
latest
firm
to
draw
the
ire
of
the
U.S.
Securities
and
Exchange
Commission
(SEC).
This
weekend,
it
reported
receiving
a
Wells
notice
–
an
announcement
that
the
securities
watchdog
is
building
a
case
and
intends
to
sue.
In
an
8-K
filing,
the
fintech
firm
revealed
it
received
the
letter
from
the
SEC’s
enforcement
division
for
alleged
securities
violations.
This
is
an
excerpt
from
The
Node
newsletter,
a
daily
roundup
of
the
most
pivotal
crypto
news
on
CoinDesk
and
beyond.
You
can
subscribe
to
get
the
full
newsletter
here.
At
this
point,
it’s
hard
to
be
surprised
by
the
SEC’s
anti-crypto
actions
–
shameless
though
they
may
be.
Apparently,
the
agency
sent
the
notice
after
Robinhood
cooperated
with
the
SEC’s
investigative
subpoenas
about
its
crypto
operations.
A
Wells
notice
is
essentially
the
last
chance
the
accused
has
to
convince
regulators
that
it
didn’t
break
the
law,
which
would
be
a
sign
of
good
faith
except
that
the
vast
majority
of
these
letters
end
up
in
a
lawsuit.
As
Robinhood
legal,
compliance,
and
corporate
lead
Dan
Gallagher
noted
in
a
statement,
the
firm
has
been
in
direct
communication
with
the
SEC
over
its
crypto
offerings
for
years,
which
is
exactly
what
you’d
expect
from
a
firm
that
really
only
dabbles
in
crypto.
It’s
not
clear
from
the
letter
which
tokens
are
considered
securities
by
the
SEC,
though
it’s
worth
noting
the
brokerage
proactively
delisted
a
number
of
tokens
—
including
Solana
(SOL),
Polygon
(MATIC)
and
Cardano
(ADA)
—
in
response
to
previous
SEC
lawsuits
against
rival
trading
firms.
“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,”
Gallagher
said.
He
noted
in
particular
the
firm’s
“years
of
good
faith
attempts
to
work
with
the
SEC
for
regulatory
clarity”
and,
like
other
crypto
firms
in
legal
limbo,
“well-known
attempt
to
‘come
in
and
register.’”
Further,
in
heeding
“the
SEC’s
calls,”
Robinhood
attempted
to
register
as
a
special
purpose
broker-dealer
with
the
agency.
While
there
are
many
licensed
crypto
firms,
so
far
Prometheum
Ember
Capital,
a
trading
company
that
doesn’t
yet
offer
any
assets
to
trade,
is
essentially
alone
in
receiving
a
special
purpose
broker-dealer
license,
which
were
introduced
in
2020
to
allow
firms
to
custody
and
transact
in
“crypto
asset
securities.”
While
just
speculation,
I
have
a
sense
the
SEC
started
to
build
a
case
right
around
the
time
Gallagher,
himself
a
former
SEC
commissioner
and
securities
law
expert,
testified
before
Congress
that
the
SPBD
process
is
irrevocably
broken
and
a
profound
waste
of
resources.
To
wit:
“When
Chair
Gensler
at
the
SEC
in
2021
said,
‘Come
in
and
register,’
we
did,”
Gallagher
said
in
a
June
2023
House
Agriculture
Committee
crypto
hearing.
“We
went
through
a
16-month
process
with
the
SEC
staff
trying
to
register
[as]
a
special
purpose
broker-dealer.
And
then
we
were
pretty
summarily
told
in
March
that
that
process
was
over
and
we
would
not
see
any
fruits
of
that
effort.”
So,
to
sum
up,
the
SEC
announced
intentions
to
sue
a
firm
for
failing
to
register
for
a
license
after
seemingly
denying
the
firm
that
very
license
(though
to
be
accurate,
the
SPBD
licenses
are
given
out
by
self-regulatory
organization
FINRA).
This
fits
with
a
long
pattern.
Since
coming
into
office
in
2021,
SEC
Chair
Gary
Gensler
has
made
it
his
business
to
rein
in
the
crypto
industry,
which
he
says
is
under
his
remit
(an
arguable
contention).
These
efforts
dramatically
increased
in
the
wake
of
the
collapse
of
FTX,
which
was
particularly
embarrassing
for
U.S.
regulators
given
how
cozy
Sam
Bankman-Fried
was
with
them.
The
SEC
now
spends
a
disproportionate
amount
of
time
and
money
pursuing
legal
challenges
against
crypto
firms
both
large
and
small.
The
agency
has
filed
at
least
one
lawsuit
per
month
since
last
November
against
a
crypto
company,
the
majority
of
which
go
unnoticed
and
typically
end
in
a
settlement.
“The
SEC
just
sent
a
Wells
notice
to
Robinhood.
The
number
they’ve
sent
about
crypto
in
recent
months
is
astonishing.
It’s
hard
to
imagine
that
they
would
(or
could)
bring
so
many
enforcement
actions
at
once,”
Variant
Fund
legal
lead
Jake
Chervinsky
said
on
X.
“It
seems
like
they’re
abusing
the
Wells
process
as
a
scare
tactic
now.”
In
some
sense,
these
lawsuits
—
particularly
the
ones
brought
against
big
name
firms
like
Coinbase
and
Robinhood
—
are
an
attempt
to
signal
that
crypto
is
essentially
lawless.
This
is
not
squarely
the
fault
of
the
SEC,
but
also
that
Congress
slept
on
crypto
regulation
for
over
a
decade
and
is
now
hampered
by
partisan
gridlock.
“I
don’t
know
why
[the
SEC]
did
what
they
did.
But
there’s
no
going
back
on
rules
now,”
Beau
J.
Baumann,
a
PhD.
candidate
at
Yale
Law
School,
and
co-author
of
an
influential
crypto
law
paper,
told
CoinDesk
in
an
interview.
“In
that
sense,
the
whole
thing
is
bad
faith.
If
the
enforcement
actions
are
unlawful,
writing
a
rule
is
way
more
obviously
so.”
“Congress
should
enact
new
legislation
to
avoid
legal
pitfalls,
but
it’s
unclear
to
me
whether
they
actually
will,”
Baumann
added.
Gensler,
for
his
part,
has
stated
directly
that
he
doesn’t
think
crypto
needs
bespoke
legislation
or
guidance,
given
his
view
that
everything
crypto,
bar
bitcoin,
walks
and
talks
like
securities.
While
the
SEC
has
had
legal
victories,
it’s
suffered
many
court
losses
as
well.
It
remains
to
be
seen
whether
Robinhood
will
actually
get
sued,
and
if
so
whether
it
goes
the
way
of
Coinbase
and
Consensys
and
mounts
its
own
offensive
legal
campaign.
If
there
is
a
silver
lining
here,
it’s
that,
after
years
of
trying
to
eat
the
entire
crypto
pie,
Gensler’s
SEC
may
have
bitten
off
more
than
it
could
chew.
Robinhood’s
stock
dipped
in
pre-market
trading
today,
but
has
since
bounced
back,
an
indication
in
part
that
the
market
doesn’t
take
this
action
seriously,
at
least
materially-speaking.
