SEC Declares War Against Robinhood, former SEC Chief Predicts Crypto Onslaught Will Continue

May 6, 2024

The U.S. Securities and Exchange Commission (SEC) adds Robinhood to its growing list of crypto-related businesses served with a Wells Notice along with Coinbase, Kraken, Uniswap, and MetaMask. Pundits, however, have a negative reaction to this, with a former SEC chief noting that the “crypto onslaught will continue” as long as “the Democrats are in charge” of running the regulatory agency.

Robinhood Markets announced Monday that Robinhood Crypto, its crypto unit, received a Wells Notice from the SEC staff last Saturday. The brokerage firm also shared that the regulator indicated its intention to advise the agency to pursue an enforcement action based on their findings. 

In response to recent developments, Dan Gallagher, Chief Legal, Compliance, and Corporate Affairs Officer at Robinhood Markets, Inc., expressed disappointment regarding the U.S. Securities and Exchange Commission’s (SEC) decision to issue a Wells Notice to their U.S. crypto business. Gallagher emphasized the company’s longstanding efforts to collaborate with the SEC for regulatory clarity, including their previous attempts to ‘come in and register.’ He stated, “We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.”

Former SEC Office of Internet Enforcement Chief John Reed Stark highlighted the potential partisan influence on the SEC’s approach to cryptocurrency regulation, stating, “So long as the Democrats are in charge of the SEC, because it’s become such a partisan issue, the SEC’s crypto onslaught will continue. There will be no regulatory relief, there will be no slowing down of enforcement actions, there will be appeals, there will be aggressive cases, there will be all sorts of joint work with the FBI who have their own crypto unit.” 

Stark suggested that a Republican administration might bring about a different approach, noting, “The good news for the crypto enthusiasts is that, because the issue has become so partisan, what’s gonna happen is that, if a Republican gets elected there will be a complete reversal, I think, of just about all that except for the more egregious cases of fraud.”

He further speculated that under Republican leadership, regulatory pronouncements concerning crypto intermediaries such as Coinbase, Binance, Beaxy, and Bittrex might see a halt in certain types of cases, stating, “But, as far as regulatory pronouncements, when it comes to whether Coinbase, Binance, Beaxy, and Bittrex and all these crypto intermediaries are acting as broker-dealers or exchanges or clearing firms those sort of cases are going to stop if a Republican gets elected.”

Variant Fund lawyer Jake Chervinsky expressed alarm over the notable surge in Wells notices related to crypto in recent months, questioning the feasibility of such concurrent enforcement actions. His concern centered on the perceived use of the Wells process as a coercive measure rather than genuine regulatory oversight. Furthermore, Chervinsky argued that the SEC’s disproportionate focus on crypto detracts from its core mandate of overseeing equity and debt markets, prompting broader concerns about regulatory priorities and resource allocation.

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