SUMMARY

• Robinhood’s crypto subsidiary previously restricted users from withdrawing tokens they had purchased, a policy discontinued in 2022.
• California’s attorney general imposed a $3.9 million fine on Robinhood Crypto LLC for these past practices, despite the policy change.

Robinhood’s cryptocurrency arm has agreed to pay a $3.9 million penalty to settle an investigation by California’s Department of Justice (DOJ) over past practices that limited clients from withdrawing their crypto assets. The company had prevented clients from transferring their acquired tokens out of the platform between 2018 and 2022, driving them to sell their assets back to Robinhood to exit the platform. Even though Robinhood Crypto LLC abandoned this disputable approach last year, the state’s attorney general, Rob Bonta, secured the multi-million-dollar settlement to address this infringement of California’s consumer protection laws.

According to the DOJ, Robinhood also deceived its clients by claiming it would connect to numerous trading scenes to secure the best prices for them, which was not always genuine. This settlement requires the company to guarantee that clients can presently withdraw their cryptocurrency and transfer it to outside wallets. Robinhood must moreover make it clear to clients that the platform will custody crypto resources and might delay settlement with trading venues if there are concerns around the security of a cryptocurrency’s network.

Lucas Moskowitz, Robinhood’s general counsel, said the company is satisfied to have settled the issue, including that the settlement addresses the Attorney General’s concerns related to past practices. He emphasized that Robinhood is committed to making cryptocurrency trading more available and reasonable for everybody. Taking after the settlement news, Robinhood’s stock dropped 1.34%, closing at $19.11 on Nasdaq.

Robinhood has been doubling down on its focus on crypto trading. In June, the company declared plans to acquire the crypto platform Bitstamp, with the deal anticipated to close in the first half of 2025. Furthermore, Robinhood reported a noteworthy rise in its crypto-based revenues amid the second quarter of 2024, approximately $81 million, a 161% year-over-year increment. This figure outperformed the company’s revenue from equities trading during the same period.

Robinhood’s past practices came under investigation due to infringement of California commodities law. The DOJ’s examination found that by permitting clients to purchase cryptocurrencies but preventing them from taking custody of those resources, Robinhood failed to comply with state regulations. As part of the settlement, Robinhood must continue to permit clients to withdraw their cryptocurrency and upgrade its disclosures about resource custody.

Robinhood moreover faces a separate investigation from the U.S. Securities and Exchange Commission (SEC), which informed the company in May that it is planning to file suit over alleged violations of federal securities laws. Despite these challenges, Robinhood is pushing ahead with its ambitious crypto development, betting enormously on the future of digital assets.

With this settlement behind them, Robinhood aims to keep up its development in the crypto market while guaranteeing compliance with consumer protection laws.