Robinhood Crypto Settles California Case for $3.9M Over Withdrawal Restrictions

TLDR:

• Robinhood Crypto agrees to $3.9 million settlement with California Department of Justice
• Settlement addresses violations related to crypto withdrawals from 2018-2022
• California DOJ accuses Robinhood of preventing customer withdrawals and misleading practices
• Settlement requires Robinhood to allow crypto withdrawals and improve transparency
• This marks California DOJ’s first public action against a crypto firm

Robinhood Crypto LLC, the cryptocurrency arm of popular trading app Robinhood, has agreed to pay $3.9 million to settle charges brought by the California Department of Justice.

The settlement, announced on September 5, 2024, addresses allegations that the company prevented customers from withdrawing digital assets from their accounts between 2018 and 2022.

The California Department of Justice’s investigation revealed that Robinhood Crypto allowed users to purchase cryptocurrencies as commodities for short-term gains without delivering the actual assets.

This practice was deemed a violation of California’s Commodity Code. During this period, customers were unable to withdraw their crypto, forcing them to sell their assets back to Robinhood if they wanted to exit the platform.

The settlement includes several conduct requirements. Robinhood must now allow customers to withdraw cryptocurrencies to their own wallets and improve transparency regarding trading and order handling practices.

The investigation also uncovered that Robinhood allegedly misled users by falsely advertising that it would connect to multiple trading venues to ensure competitive prices.

The California DOJ stated that Robinhood did not always provide access to the best prices as promised.

TThe company misrepresented its duties as a crypto custodian, assuring customers it held all assets purchased on its platform when, in fact, some assets were stored with third-party venues for extended periods without disclosure.

Lucas Moskowitz, Robinhood’s general counsel, stated that the company is

“pleased to put this matter behind us” and that the settlement “fully resolves the Attorney General’s concerns related to historical practices.” Moskowitz added that Robinhood looks forward to “continuing to make crypto more accessible and affordable to everyone.”

This settlement marks the first public action by the California Department of Justice against a cryptocurrency company. California Attorney General Rob Bonta emphasized that the action “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.”

Robinhood Crypto faces separate scrutiny from the U.S. Securities and Exchange Commission (SEC), which informed the company in May 2024 of its intention to file suit over alleged violations of federal securities laws.