California Attorney General Rob Bonta has announced a $3.9 million settlement with Robinhood Crypto, LLC (Robinhood) for preventing customers from withdrawing their cryptocurrency from 2018 to 2022 and failing to fully disclose aspects of its trading and order handling arrangements. This settlement resolves the investigation into Robinhood's violation of the California Commodities Law (CCL) and includes both a financial penalty and strict conduct requirements.
"While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies," said Attorney General Bonta. "Our investigation and settlement with Robinhood 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. I am dedicated to using all the tools available to my office to protect California consumers in the face of advancing technology in the marketplace."
Robinhood operates a popular platform for buying and selling cryptocurrencies such as Bitcoin. Cryptocurrency is a digital or virtual currency recorded on a blockchain, an electronic ledger updated through multiple independent computers agreeing on each transaction's legitimacy. The market for cryptocurrencies has grown significantly in recent years, but it remains highly volatile without government guarantees or insurance.
The investigation by the California Department of Justice was prompted by consumer complaints about questionable practices in the cryptocurrency industry. It concluded that Robinhood violated the CCL by allowing customers to buy cryptocurrencies without delivering these assets, forcing them to sell back their holdings to exit the platform.
Robinhood misled customers by advertising connections to multiple trading venues for competitive pricing, which was not always accurate. Additionally, while claiming that it held all customer-purchased cryptocurrencies itself, Robinhood failed to disclose instances where it arranged for trading venues to hold customer assets for extended periods.
Under today's settlement terms, Robinhood must:
- Permit customers to withdraw their cryptocurrency assets from Robinhood accounts.
- Ensure written representations about its trading practices align with actual practices.
- Clearly inform customers about custody arrangements for their crypto assets.
- Update its Customer Agreement regarding potential delays in settlements due to network security concerns.
- Disclose any incidents resulting in delayed settlements longer than one week.
Attorney General Bonta emphasized his commitment to protecting consumers and educating the public about risks in digital currencies. In 2022, he launched an informational webpage advising Californians on safe investment practices within the cryptocurrency market.
For more information on cryptocurrency risks and scams, visit oag.ca.gov/crypto.
A copy of the settlement agreement can be found here.