Crypto trading platform Robinhood has reached a $3.9 million settlement with the California Department of Justice (DOJ), following an investigation into its alleged failure to allow customers to withdraw their cryptocurrency from 2018 to 2022.
The investigation was prompted by numerous consumer complaints regarding Robinhood’s practices, particularly its handling of cryptocurrency withdrawals and trading.
Alleged Violations And Settlement Revealed
According to the DOJ, Robinhood violated the California Commodities Law (CCL) by enabling customers to purchase cryptocurrencies without delivering these assets to them, effectively selling commodities contracts without adhering to legal requirements.
During the specified period, customers could not withdraw their cryptocurrencies and were forced to sell their holdings back to Robinhood to exit the platform. California Attorney General Rob Bonta stated:
This settlement 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.
The investigation alleged that Robinhood misled customers about its trading practices. The DOJ claims that the platform promoted itself as connecting users to multiple trading venues to ensure competitive pricing, but the DOJ found that this was not consistently accurate.
Additionally, Robinhood claimed that it held all customer-owned cryptocurrencies, failing to disclose instances where third-party trading venues held these assets for extended periods.
Robinhood Measures Post-Settlement
As part of the settlement, Robinhood has agreed to several measures aimed at improving transparency and customer trust. Customers will now be permitted to withdraw their cryptocurrency assets to their own wallets.
Additionally, Robinhood must ensure that its written communications accurately reflect its actual trading and order handling practices. The company will also provide clear information regarding its custody of cryptocurrencies.
Lastly, Robinhood is required to report any incidents that result in settlement delays exceeding one week to the California Department of Justice.
Featured image from DALL-E, chart from TradingView.com