Cash News
Settlement marks first public action by DOJ against a cryptocurrency company
OAKLAND — California Attorney General Rob Bonta today announced a $3.9 million settlement with cryptocurrency trading platform Robinhood Crypto, LLC (Robinhood), for failing to allow customers to withdraw their cryptocurrency from their Robinhood accounts from 2018 to 2022, and for failing to fully disclose aspects of its trading and order handling arrangements. The settlement resolves the investigation into Robinhood’s violation of the California Commodities Law (CCL) and includes a $3.9 million penalty and strong conduct requirements.
“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 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.”
Robinhood operates a popular trading platform to buy and sell cryptocurrencies such as Bitcoin. Cryptocurrency is a digital or virtual currency recorded on a blockchain, an electronic ledger of transactions that is updated through a process of multiple, independent computers agreeing that each transaction is legitimate. In recent years, cryptocurrency has risen in popularity as a form of digital investment, and it is important to remember that the cryptocurrency market is highly volatile and there is no government guarantee or insurance for crypto assets. The investigation into Robinhood resulted from consumer complaints of questionable behavior in the cryptocurrency industry.
The investigation by the California Department of Justice concluded that Robinhood sold commodities contracts in violation of the CCL 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.
Robinhood misled customers by advertising it would connect to multiple trading venues, to ensure customers receive the most competitive prices between the venues, which was not always true. Robinhood also represented to its customers that Robinhood itself held all its customers’ cryptocurrencies purchased through Robinhood’s platform. Despite these assurances, Robinhood did not tell customers that there were instances in which it arranged for trading venues to hold customer assets for extended periods.
In addition to the $3.9 million penalty, under the settlement today Robinhood must:
- Permit customers to withdraw their cryptocurrency assets from Robinhood to their own cryptocurrency wallets.
- Ensure that its written representations to customers about its trading and order handling practices materially comport with such practices, including the routing of orders to trading venues, and cryptocurrency purchase and sale prices.
- Make clear to customers that Robinhood will custody cryptocurrency that customers own, update its Customer Agreement to disclose that it may delay settlement with trading venues in the event of an incident that raises concerns about a cryptocurrency asset’s network security, and disclose to our office any incident that results in delayed settlement for longer than one week.
Attorney General Bonta is committed to protecting consumers and educating the public about significant risks in the digital currency space. In 2022, Attorney General Bonta urged Californians to stay informed and protect their money when investing in the cryptocurrency market by launching a new webpage with information on cryptocurrencies and how to avoid scams and other pitfalls. To learn more about cryptocurrency and scams in the digital currency space, please visit oag.ca.gov/crypto.
A copy of the settlement agreement can be found here.