Robinhood Crypto has agreed to pay $3.9 million to settle allegations from California authorities that it misled investors and restricted access to their assets.
The case centers around claims that, between 2018 and 2022, Robinhood Crypto violated the state’s commodities law by selling crypto investments without delivering the underlying digital assets to investors.
According to California regulators, investors who were seeking short-term gains found their assets locked on Robinhood’s platform. Their only option to realize profits was to sell the digital assets and withdraw the proceeds, an action that contradicted expectations set by Robinhood.
California Attorney General Rob Bonta emphasized that the state’s consumer protection laws apply equally to digital assets as they do to traditional financial products. He remarked, “While cryptocurrency is relatively new, California’s longstanding consumer protection laws are in place to safeguard against misleading practices, including by cryptocurrency companies. This settlement with Robinhood highlights the importance of adhering to these laws.”
Lucas Moskowitz, general counsel for Robinhood Markets, responded to the allegations, stating that “customers could always sell their crypto and withdraw the proceeds.” He added that the platform enabled crypto transfers for all eligible users starting in April 2022, when Robinhood launched its crypto wallet.
While Robinhood settled the case without admitting or denying the allegations, the company expressed satisfaction with the outcome. “We are pleased to have resolved this matter,” Moskowitz said. “This settlement addresses historical practices, and we look forward to continuing to make crypto more accessible and affordable to all.”
The investigation by California’s Department of Justice began after consumer complaints surfaced about issues within Robinhood’s cryptocurrency operations. The state found that Robinhood misrepresented its trading practices, claiming to offer the best available pricing for customers by connecting with multiple trading venues. However, California’s investigation revealed that this was not always the case.
Additionally, Robinhood told investors that their assets would be held on its platform. However, the company allegedly failed to disclose that, in some cases, it arranged for third-party trading venues to hold customer assets for extended periods.
As part of the settlement, Robinhood agreed to allow customers to withdraw their investments to external digital wallets and ensure that its trading and order-handling policies are consistently implemented. The company is also required to notify the California Department of Justice in the event of any cybersecurity incidents that delay settlements.
