(Kitco News) - Robinhood Markets Inc., which runs the popular Robinhood equity and crypto trading app, has revealed that it received an investigative subpoena from the U.S. Securities and Exchange Commission (SEC) in December regarding its dealings with cryptocurrencies.
Investigative subpoenas are issued by a court at the request of another person or entity for the purposes of obtaining the information necessary to decide whether to pursue legal action against the subpoenaed person or entity.
The brokerage firm made the revelation in its annual 10-K filing, which was submitted to the SEC on Monday. According to the filing, Robinhood received the subpoena around a month after FTX filed for bankruptcy, which followed bankruptcy filings by “several other major cryptocurrency trading venues and lending platforms earlier in 2022,” including Three Arrows Capital, Voyager Digital Holdings and Celsius Network.
The subpoena was seeking further information related to Robinhood’s cryptocurrency listings and custody services, the brokerage firm said.
“In December 2022, following the 2022 Crypto Bankruptcies, we received an investigative subpoena from the SEC regarding, among other topics, RHC’s supported cryptocurrencies, custody of cryptocurrencies, and platform operations.”
The increased scrutiny of custody procedures likely stems from accusations that FTX and other crypto firms have illegally comingled user funds with corporate funds. Earlier in February, the SEC proposed a rule change related to how registered investment advisors (RIA) handle the custody of their client's funds in response to concerns around comingling.
The proposed rule changes were approved in a 4-1 vote by the SEC. If passed, the new rules set the stage for an expansion of the agency’s existing regulations to require that all assets held by an RIA – including crypto – must be entrusted with a “qualified custodian.”
The fact that the SEC was specifically seeking information regarding Robinhood custody practices suggests the issue of comingling user funds is a high priority for the regulator.
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This is not Robinhood’s first run-in with regulators when it comes to its crypto trading desk. Last April, the firm received subpoenas from the California Attorney General’s Office, which sought information about its crypto trading platform, coin listings, business and operations, and custody procedures for customer assets.
And in August, the crypto division was fined $30 million by the New York District of Financial Services on Aug. 2 for failing to “invest the proper resources and attention to develop and maintain a culture of compliance.”
