Robinhood Crypto Faces $3.9M Settlement in California Over Historical Practices

Coinspeaker
Robinhood Crypto Faces $3.9M Settlement in California Over Historical Practices

Robinhood Crypto, the cryptocurrency arm of Robinhood Markets Inc, recently faced consequences for its past practices, with the California Department of Justice concluding an investigation that resulted in a $3.9 million settlement.

The investigation centered around Robinhood Crypto’s operations from 2018 through 2022, during which the company restricted customers from withdrawing cryptocurrencies they purchased. However, Robinhood revised its policy in 2022.

The case revolved around Robinhood Crypto’s business model. At the time, customers could buy cryptocurrencies on the platform but did not have direct control over their assets, meaning they couldn’t transfer their crypto holdings off the platform into personal wallets. In contrast to traditional securities trading, where shares can be held in personal brokerage accounts, Robinhood retained custody of customers’ digital assets.

California’s Attorney General treated the cryptocurrencies offered on the platform as commodities under state law. The withdrawal restriction meant that Robinhood violated California’s commodities regulations.

As part of the settlement, Robinhood Crypto is required to continue allowing its customers to withdraw their cryptocurrency holdings. Moreover, the company must enhance its disclosures about how it handles custody of digital assets, providing clearer information to customers about their rights and the company’s responsibilities.

Lucas Moskowitz, Robinhood Markets’ general counsel, expressed the company’s relief at resolving the issue. He stated that the settlement fully addressed the Attorney General’s concerns regarding historical practices, and the company looked forward to making cryptocurrency more accessible and affordable for all.

California has introduced the “Digital Financial Assets Law”, its first crypto licensing framework. The law requires digital asset companies to obtain a license from the state’s Department of Financial Protection and Innovation by July 2025. Exchanges must assess whether listed assets may be considered securities, and companies are required to provide clear risk disclosures to help consumers make informed crypto investment decisions.

This is not Robinhood’s first encounter with regulatory scrutiny. In May, the US Securities and Exchange Commission (SEC) notified Robinhood of its intent to file a lawsuit over alleged violations of federal securities laws.

Furthermore, in July, Robinhood settled a class-action lawsuit for $9 million. The case involved claims that the company sent unsolicited text messages as part of a “refer-a-friend” program, affecting thousands of Washington state residents.

Despite these regulatory challenges, Robinhood is pressing forward with its expansion plans. The company, which initially offered commission-free stock trading, has been steadily growing its crypto offerings to attract a broader base of retail investors. In June, Robinhood announced its acquisition of the cryptocurrency exchange Bitstamp in a $200 million cash deal, a move that could further bolster its presence in the global crypto market.

Robinhood Crypto Faces $3.9M Settlement in California Over Historical Practices