Robinhood’s crypto subsidiary has agreed to a $3.9 million settlement to resolve allegations of locking investor assets on its platform and issuing misleading statements about trading and order-handling practices.
From 2018 to 2022, California authorities claim that Robinhood Crypto violated the state's commodities law by selling crypto investments as commodities contracts without actually delivering the digital assets to investors. As a result, investors seeking short-term gains found that their only option to realize a profit was to sell the underlying assets and withdraw the proceeds.
California Attorney General Rob Bonta highlights the settlement as a reminder that the state’s consumer protection laws apply to digital assets just as they do for traditional investments.
“While cryptocurrency is relatively new, California’s consumer protection laws remain strong,” Bonta says. “This settlement with Robinhood sends a clear message: whether you're a physical business or a crypto company, you must comply with California's consumer and investor protection laws.”
Robinhood’s general counsel, Lucas Moskowitz, responds by clarifying that “customers were always able to sell their crypto and withdraw proceeds,” and that by April 2022, the company had enabled crypto transfers for all eligible customers with the introduction of its crypto wallet.
Robinhood resolved the case with California's Department of Justice without admitting or denying any violations of state law. “We’re pleased to resolve this matter,” Moskowitz says. “This settlement addresses past concerns, and we’re excited to continue making crypto more accessible and affordable for everyone.”
The investigation into Robinhood's crypto platform began after the state received consumer complaints about "questionable behavior" in the crypto industry. The state’s findings indicated that Robinhood was not fully transparent in how it described its method for processing crypto transactions. Specifically, California officials allege that Robinhood advertised connecting with multiple trading venues to ensure customers secured the best prices for their crypto purchases, but this wasn’t always the case.
Moreover, Robinhood allegedly assured customers that it would hold all their investments on its own platform. However, the state contends that Robinhood did not disclose that, in some instances, it arranged for trading venues to hold customer assets for extended periods.
As part of the settlement, Robinhood committed to several operational changes. These include enabling customers to withdraw investments from Robinhood Crypto to their own digital wallets, ensuring that written policies regarding trading and order handling are consistently followed, and notifying California’s Department of Justice in the event of a cybersecurity breach that delays settlements.
