The SEC, also known as the United States Securities and Exchange Commission, has recently sent a Wells notice to Robinhood, a popular trading platform. This news has caused Robinhood’s share price to drop by 2.5% in pre-market trading, reaching $17.95 as of 12:50 pm UTC. The Wells notice was officially issued on May 4, as stated in a court filing.
A Wells notice is a letter sent by the securities regulator, in this case, the SEC, to inform the respondent, in this case, Robinhood’s U.S.-based crypto business, that the investigation has been concluded. According to the filing, the SEC has been investigating Robinhood’s cryptocurrency listings and crypto custodian operations. Based on their findings, they have made a “preliminary determination” to recommend that the SEC takes legal action related to alleged securities violations.
Despite Robinhood’s attempts to register with the U.S. securities watchdog, as stated by Dan Gallagher, the chief legal, compliance, and corporate affairs officer at Robinhood Markets, the news of the investigation still came as a surprise. Gallagher addressed this issue in a blog post on May 6, stating that Robinhood does not consider any of its listed assets to be securities.
Robinhood has been actively trying to avoid securities violations. To do so, they have chosen not to list certain tokens and have refrained from providing crypto lending and staking services that the SEC has previously deemed as securities offerings during lawsuits against other platforms. However, Robinhood’s chief compliance officer acknowledges that the lack of federal regulatory clarity has created an unfair environment for market participants, making it difficult for them to comply with regulations and hindering the mainstream adoption of cryptocurrencies.
During a court testimony on June 6, Gallagher, who has previous experience as an SEC commissioner from 2011 to 2015, highlighted the need for clear guidelines from the SEC and the Commodity Futures Trading Commission regarding the classification of digital assets as securities or commodities.
Despite the regulatory challenges, Bitcoin has entered a new era as large investors acquire over 47,000 BTC during a price pullback.