The cryptocurrency division of online broker Robinhood will pay a $3.9 million fine as part of a settlement with the California Department of Justice.
The settlement concludes an investigation by the department into the company’s violations of the state’s commodities law. Prosecutors initiated the case following complaints from platform users.
Complaints against Robinhood Crypto included:
- the inability to withdraw digital assets from 2018 to 2022;
- insufficient disclosure of trading aspects and order processing procedures.
According to the statement, the platform sold commodity contracts in violation of the law, allowing clients to purchase cryptocurrencies without actually delivering the assets.
During the specified period, the company did not allow cryptocurrency withdrawals to external wallets. This forced users to sell coins back to Robinhood to leave the platform.
The Department of Justice claimed the company misled clients by asserting they received competitive prices through connections to multiple trading platforms. This was not always true, nor was the information about Robinhood Crypto’s self-custody of user funds. In some cases, third-party custodians were used, authorities found.
In addition to the fine, the department required the platform to:
- allow clients to withdraw crypto assets to their own wallets (this option was implemented by Robinhood in 2022);
- ensure that client information regarding trading practices and order processing is accurate;
- provide clear understanding to users about where their funds are stored;
- include in the terms of service a clause about potential settlement delays if cybersecurity risks arise in the context of cryptocurrency use.
The company must notify the Department of Justice of such incidents if assets are frozen for more than a week.
“Our investigation and settlement with Robinhood sends a strong message: whether you are a traditional business or a crypto company, you must comply with California’s consumer and investor protection laws,” said state Attorney General Rob Bonta.
In 2022, the New York State Department of Financial Services fined Robinhood Crypto $30 million for violating AML norms and cybersecurity policies.