Robinhood Markets (HOOD) said it was subpoenaed by the SEC in December, shortly after Sam Bankman-Fried’s FTX exchange filed for bankruptcy in November, triggering a string of failures in the industry. The investigation regarded, among other topics, supported cryptocurrencies at Robinhood Crypto LLC, which is a wholly-owned subsidiary of the brokerage, custody of cryptocurrencies, and platform operations, the company disclosed in its latest 10-K filing.
Robinhood also acknowledged that the SEC’s scrutiny could potentially lead to it being forced to cease crypto trading on the platform. Such action can cause financial losses to the company, should regulators rule that Robinhood has to compensate its customers.
“To the extent that the SEC or a court determines that any cryptocurrencies supported by our platform are securities, that determination could prevent us from continuing to facilitate the trading of those cryptocurrencies (including ceasing support for such cryptocurrencies on our platform). It could also result in regulatory enforcement penalties and financial losses in the event that we have liability to our customers and need to compensate them for any losses or damages,” Robinhood said in its risk disclosure.
The company also received a similar subpoena request from the California Attorney General’s office regarding its trading platform, business and operations, custody of customer assets, customer disclosures, and coin listings. The company said it’s cooperating with the investigation.
Currently, Robinhood lists 18 cryptocurrencies, including Bitcoin, Ethereum, Cardano, Solana, Dogecoin, and Shiba Inu. Traders can buy crypto from the platform commission-free, starting from as little as $1. All the assets listed on Robinhood are the ones that have been “analyzed under applicable internal policies and procedures and that, we believe, are not securities under U.S. federal and state securities laws,” the company said in a filing.
Catering to retail traders, the Robinhood trading app saw explosive growth during the Covid-19 pandemic, accelerated by stimulus checks, lockdowns, and low interest rates. However, the dramatic collapse of FTX hindered investors’ enthusiasm, as it triggered a wave of failures and liquidations in the industry, and forced regulators worldwide to step in to protect investors from the risks. As a result, Robinhood saw its transaction revenue dip 24% in Q4 2022, down to $39 million from the estimated $51 million.
Earlier this month, Robinhood announced its plans to repurchase all the 55 million shares that Sam Bankman-Fried’s Emergent Fidelity Technologies bought in May 2022. The stake, worth $450 million, was seized by the U.S. Justice Dept in January due to the fact that multiple parties — including BlockFi, FTX, Emergent liquidators, and Sam Bankman-Fried himself — have laid claims to the shares.
"The proposed share purchase underscores the confidence the Board of Directors and management team have in our business," the company said in a statement. "Since there is limited precedent for this type of situation, we cannot predict when, or if, the share purchase will take place. We will provide updates as appropriate."