SEC warns Robinhood that its crypto company is facing a lawsuit

(Bloomberg) — The U.S. Securities and Exchange Commission has ordered Robinhood Markets Inc. warned that it faces enforcement action over its crypto activities – the latest sign that the regulator is not letting up on its years-long crackdown on digital assets.

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Robinhood, which is best known for stock trading, said Monday that SEC enforcement staff had sent the company a so-called Wells notice indicating it had made an initial determination to recommend enforcement action. The company's shares fell more than 2% in premarket trading.

The company will have an opportunity to respond to the SEC's allegations before the regulator takes action. Sometimes the response convinces the SEC to back off. If not, the regulator could file a lawsuit or settle with Robinhood to resolve the investigation.

Robinhood's Chief Legal Officer Dan Gallagher said in a statement that the company was disappointed by the move and that company officials “firmly believe that the assets listed on our platform are not securities.” The SEC, whose jurisdiction includes assets that are securities, declined to comment.

The SEC led by Gary Gensler has argued that most tokens are subject to SEC rules and that platforms on which they trade must be registered with the agency. The SEC has filed lawsuits against other high-profile crypto brokers and trading platforms, including Coinbase Global Inc.

Robinhood previously announced that it had received an investigative subpoena regarding, among other things, its cryptocurrency listings and custody. The

To decide whether an asset falls under the securities rules, the SEC relies on a test laid out in a 1946 Supreme Court case. Crypto advocates say many digital assets don't meet that standard and the SEC should revise rules to take into account the unique characteristics of the asset class.

(Updates with details throughout)

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