SEC issues Wells Notice against Robinhood, crypto community calls it 'scare tactics'

Robinhood’s crypto division received a Wells Notice from the US Securities and Exchange Commission (SEC) on May 4.

According to a May 8 filing, the Gary Gensler-led Commission staff had been investigating Robinhood’s “cryptocurrency listings, custody of cryptocurrencies, and platform operations” for some time before recommending an enforcement action against it.

Dan Gallagher, the chief legal officer at Robinhood Markets, said the firm was “disappointed” with the SEC after its failed attempts to register with the regulator. He added:

“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.”

Robinhood is a US-based digital trading app that previously delisted major cryptocurrencies like Cardano, Polygon, and Solana after the SEC classified them as securities in a lawsuit against Coinbase and Binance.

Wells Notice

The notice against Robinhood is the latest in the SEC’s ongoing scrutiny of crypto-related entities.

Last month, the SEC served Uniswap with a Wells Notice. The DEX’s founder, Hayden Adams, criticized the regulator’s approach, stating that it had attacked “established actors like Uniswap and Coinbase while overlooking the malpractices of entities like FTX.”

Similarly, Consensys received a Wells Notice from the SEC during the same period. In response, the crypto-focused firm opted to take legal action against the SEC, arguing that categorizing ETH as a security would hinder the growth and utilization of Ethereum and other blockchain technologies in the US.

‘Scare tactic’

Several crypto stakeholders have slammed the SEC for this latest regulatory action against Robinhood.

Jake Chervisnky, the chief legal officer at Variant Fund, said the SEC was abusing the Wells process as it seems to be adopting the tool as a “scare tactic now.”

According to him:

“If the SEC brings as many enforcement actions as it has sent Wells notices, it will be in flagrant violation of both the law and its Congressional mandate. If not, it’s clearly abusing the Wells process to get free discovery and terrorize upstanding US companies.”

Meanwhile, Adam Cochran argued that the SEC’s actions were being pushed to prevent new crypto startups.

He added that Gensler does not plan to win the cases as he is only focused on getting headlines to impress “[Elizabeth Warren] enough that under a Biden re-election, he gets Treasury seat, or is kicked out under a Trump win.”