In summary
- Robinhood has agreed to pay $3.9 million after being accused of preventing customers from withdrawing their digital assets for four years.
- The California Department of Justice revealed that Robinhood Crypto LLC allowed users to buy cryptocurrencies as commodities without delivering the actual assets.
- The settlement includes a financial penalty and conduct requirements, such as allowing customers to withdraw Cryptocurrency and improving transparency in trading.
Robinhood has agreed to pay $3.9 million after being accused of preventing customers from withdrawing cryptocurrency from their accounts over a four-year period.
On Wednesday, the California Department of Justice said it marked the regulator’s first public action against a cryptocurrency firm as it continues to exercise its authority under the banner of “protecting consumers.”
The findings of the California Department of Justice investigation revealed that Robinhood Crypto LLC allowed users, between 2018 and 2022, to purchase cryptocurrencies as commodities for the purpose of making short-term profits without delivering the actual assets.
Robinhood’s action was deemed a violation of the California Commodities Code. At the time, customers were unable to withdraw their cryptocurrency, leaving them with no choice but to sell it back to Robinhood to exit the platform, the department said.
Along with the financial penalty, the settlement includes several conduct requirements. Under the settlement agreement, Robinhood must allow customers to withdraw cryptocurrency to their wallets and improve transparency in trading and order handling.
The DOJ investigation also revealed that Robinhood misled its users by falsely advertising that it would connect to multiple trading venues to ensure competitive pricing.
Robinhood did not always provide access to the best prices as promised, according to the DOJ, which added that the platform also misrepresented its duties as a cryptocurrency custodian by assuring customers that it held all assets purchased on its platform when that was not the case.
Some assets were instead stored in third-party locations for extended periods without disclosure rather than what was announced at the time.
In addition to its agreement requirements and changes to how it handles users’ cryptocurrencies, the platform must now also disclose any delayed settlements that exceed one week.
The settlement follows another lawsuit in Washington in July, where Robinhood Financial LLC agreed to pay $9 million to settle allegations that its referral program sent unwanted text messages in violation of consumer protection laws.
Robinhood did not immediately respond to a request for comment.
Edited by Sebastian Sinclair
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