Robinhood Crypto, LLC, has agreed to pay a $3.9 million settlement with the California Attorney General’s Office over allegations of consumer protection violations. The settlement, announced by Attorney General Rob Bonta on Wednesday, focuses on Robinhood’s failure to allow customers to withdraw their cryptocurrency holdings between 2018 and 2022. The agreement also addresses misleading disclosures about the company’s trading practices.
Violations of State Law
The agreement resolves a broader investigation into violations of the California Commodities Law (CCL). Attorney General Bonta emphasized that the state’s robust consumer protection laws apply equally to emerging industries like cryptocurrency. He underscored his commitment to safeguarding California residents as technological advancements reshape the marketplace. Bonta stated,
Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws
The settlement requires Robinhood to pay a $3.9 million penalty and implement significant changes to its business operations. These changes include ensuring customers can withdraw their cryptocurrency assets and providing accurate information about its trading practices.
DOJ Investigation Findings
Following consumer complaints, the California Department of Justice scrutinized Robinhood. The investigation revealed that Robinhood sold commodities contracts in violation of the CCL. This allowed customers to purchase cryptocurrencies without actually transferring those assets to them. Instead, customers were forced to sell their cryptocurrency back to Robinhood if they wished to exit the platform.
The investigation also found that Robinhood misrepresented its trading practices by claiming to connect to multiple trading venues to secure competitive pricing for customers. However, the platform needed to follow this practice consistently.
Misleading Trading Practices
Robinhood did not clearly inform its customers that external platforms sometimes hold their assets for long periods. This goes against the company’s promise that it constantly controls customer funds, creating confusion and a lack of transparency about where the assets are held.
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Under the settlement, Robinhood is required to allow users to transfer their cryptocurrency to external wallets and communicate any transaction delays based on security concerns. The company must also disclose to regulators any incidents resulting in settlement delays of over a week.
This case underscores the importance of transparency in the cryptocurrency industry. As Bonta noted, the volatility of the digital currency market demands that companies be upfront about the risks involved and fully compliant with consumer protection laws.
