Robinhood's cryptocurrency division has agreed to pay a $3.9 million settlement following a legal dispute with California's Department of Justice (DOJ).
The case revolved around accusations that the platform blocked users from withdrawing crypto from 2018 to 2022.
A press release published on September 4 revealed that this was the DOJ's first action targeting a cryptocurrency company.
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California Attorney General Rob Bonta stated that Robinhood Crypto LLC violated state commodity laws by selling crypto contracts without delivering the actual assets to customers. Investors were unable to withdraw their cryptocurrencies and had to sell them back to Robinhood to leave the platform.
The investigation further found that Robinhood falsely claimed to hold customer assets when, in fact, they were sometimes managed by third-party trading platforms. Additionally, the company misled customers with false promises about connecting to various trading venues for better prices.
Robinhood neither admitted nor denied any wrongdoing in the settlement, finalized on August 31.
The terms of the settlement include not just the financial penalty but also reforms to Robinhood's operations. The company must now ensure users can withdraw their crypto holdings to external wallets, clarify how it handles trades and orders, and be transparent about who is responsible for storing customer assets.
Bonta remarked:
Our investigation and settlement with Robinhood should send a strong message: Whether you're a brick-and-mortar store or a cryptocurrency company, you must adhere to California's consumer and investor protection laws.
With this settlement, Robinhood seeks to move past the allegations, while regulators continue to focus on ensuring transparency and consumer protection within the crypto industry.
Robinhood was also recently targeted by the US Securities and Exchange Commission (SEC), receiving a Wells notice due to suspected securities violations.
