- Robinhood may have misled users by claiming its crypto platform was the cheapest to use.
- Florida wants proof that Robinhood’s pricing and ads are fair and legal for investors.
- Selling tokenized shares of private firms without approval could bring lawsuits and losses.
Robinhood Markets Inc. is under investigation by the Florida Attorney General’s Office over claims of misleading consumers about cryptocurrency trading costs and unauthorized securities offerings. The probe accuses the Menlo Park-based fintech company of falsely promoting its platform as the cheapest option to buy crypto while potentially concealing fees through its business model.
Alleged Misrepresentation of Trading Costs
According to the state Attorney General’s press release, Robinhood’s crypto operations may have violated Florida law by presenting a distorted picture of cost transparency. The company advertised its crypto services as the “least expensive way to purchase crypto,” a claim now under scrutiny.
Florida regulators issued a subpoena demanding internal documents, including marketing materials related to Robinhood’s pricing structure and order execution policies. The investigation will determine if the firm’s payment for order flow (PFOF) practice resulted in less favorable trading prices for users.
PFOF allows brokers to receive compensation from third-party firms for routing orders, which could result in customers unknowingly receiving inferior execution. In this case, the Attorney General’s Office believes this model may directly contradict Robinhood’s advertised low-cost trading narrative.
Robinhood’s CEO, Vlad Tenev, previously defended PFOF in a December 2023 CNBC interview, arguing it allows for commission-free trades. However, critics, including Florida regulators, argue it introduces a potential conflict of interest that undermines fair pricing.
Tokenized Equity Product Raises Legal Flags
Further fueling the regulatory scrutiny, Robinhood recently launched a product offering tokenized exposure to private companies for European users. These tokens, representing fractional ownership in a special purpose vehicle (SPV), are not actual shares.
The product aimed to make investment in high-profile companies like OpenAI accessible to everyday investors. However, OpenAI pushed back, calling the sale of tokenized interests unauthorized and potentially illegal.
Florida-based crypto attorney John Montague warned in an interview that Robinhood’s move could lead to lawsuits from private firms. He said such token offerings might violate governance documents and shareholder agreements. “I view it as the issuer’s right to control the terms of transfer,” Montague stated.
Another AI startup, Figure AI, sent cease-and-desist letters in April to intermediaries marketing its shares on secondary markets, suggesting broader legal discomfort with tokenized equity sales.
Legal and Regulatory Tensions Continue to Rise
The U.S. Securities and Exchange Commission (SEC) has also weighed in on this matter. While not naming Robinhood directly, SEC Commissioner Hester Peirce issued a statement warning that tokenized securities are subject to federal law.
She stated, “Distributors of tokenized securities must consider their disclosure obligations under the federal securities laws.” Peirce’s comment adds pressure on companies pushing the boundaries of financial innovation.
Related: State Bitcoin Bills in Florida Officially Dropped Without Vote
Robinhood’s plan to “democratize” access to private equity may appeal to investors, but critics believe it raises legal risks. Montague warned that, in the event of bankruptcy, token holders may not be prioritized in asset distribution due to the use of SPV structures.
Earlier, Linqto, a platform offering tokenized access to private startup equity, filed for bankruptcy, leaving investors uncertain about the status of their holdings. The incident raised concerns about the security of this new form of investment.
The office of the Attorney General in Florida seeks to determine whether Robinhood is exploiting its users or hiding secondary charges in its marketing. As cryptocurrency use grows, regulators are under increasing pressure to enforce transparency and protect investors.
