Regulation
SEC crypto regulation under fire: Robinhood and others challenge agency tactics
The United States Securities and Exchange Commission (SEC) issued a Wells notice regarding Robinhood’s crypto activity for its alleged violation of federal securities laws, according to a filing.
Robinhood could join Uniswap Labs and Consensys in the legal fight against the securities agency.
The filing indicates that the SEC staff has made a preliminary decision to recommend enforcement action against its cryptocurrency trading service provider for alleged violations. Sections 15(a) and 17A of the Securities Act of 1934.
Robinhood will fight back
Robinhood Chief Legal Officer (CLO) Compliance and Corporate Affairs Dan Gallagher said the company has been cooperating with the SEC for years. Despite this, the SEC chose to publish the Wells Notice.
“After years of good faith attempts to work with the SEC to clarify the regulations, including our well-known attempt to ‘get in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our crypto operations in the United States. Gallagher said.
He noted, however, that the cryptocurrencies listed on the Robinhood platform are not securities, which is the SEC’s main contention. He added that the company still wants to work with the SEC to clarify “how weak any case against Robinhood Crypto would be on the facts and the law.”
Following SEC lawsuits targeting two major cryptocurrency exchanges, Coinbase and Binance, Robinhood announced the delisting of Solana (SOL), Polygon (MATIC), and Cardano (ADA) – three cryptocurrencies are securities presumed.
The SEC casts a wide net
Robinhood Markets is a leader in financial trading in the United States. The company is said to be the world’s third largest holder of Bitcoin, with an estimated 118,300 BTC.
A Wells Notice is a formal notification from the SEC to a company that it may take legal action, including prosecution, civil penalties, or proceedings to revoke licenses or registrations.
Robinhood is not the only entity to receive a Wells notice. In less than two months, the SEC has made headlines for its legal warning against a number of crypto companies, including Uniswap Labs and Consensys.
Last month, Uniswap Labs, the team behind leading decentralized exchange Uniswap, said it had received a Wells Notice from the SEC. Uniswap founder Hayden Adams responded with frustration, stating that he was “not surprised, just annoyed, disappointed, but still ready to fight back.”
Adam also expressed confidence in the legality of Uniswap and criticized the SEC’s approach. He argued that instead of lawsuits, the SEC should focus on creating clear regulations for the crypto industry, referencing companies like Coinbase and Uniswap that have faced similar lawsuits .
The same month, blockchain infrastructure company Consensys, the developer of the MetaMask wallet, Linea layer-2 and Infura services, also received a Wells Notice from the SEC. In response to the legal threat, Consensys launched a lawsuit challenging the SEC’s classification of Ethereum (ETH) as a security.
Offshore options look better
Like previous cases, the recent SEC notice to Robinhood has sparked controversy among crypto members. Jake Chervinsky, CLO of Variant Fund, criticizes the SEC’s approach to crypto regulation.
In a series of tweets about X, Chervinsky suspects that the SEC may be abusing the Wells Notice process. A Wells Notice is intended to notify a company of possible legal action, but it appears the SEC may be using it more as a scare tactic to pressure companies with no real intention of pursuing litigation.
Chervinsky says the SEC is devoting too many resources to regulating cryptocurrencies. This focus on crypto removes the SEC’s ability to fulfill its primary mission: regulating traditional financial markets like stocks and bonds.
Under the leadership of SEC Chairman Gary Gensler, the commission has initiated enforcement actions against several major crypto companies, including troubled companies like FTX, Genesis, and Terraform Labs. These actions have sparked debate, with some in the crypto industry claiming that the SEC’s interventions came after these companies collapsed, leaving investors without recourse.