California Attorney General Rob Bonta has announced a significant settlement with Robinhood Crypto, LLC, following an investigation into its cryptocurrency withdrawal practices. The online trading platform has agreed to a $3.9 million settlement after failing to allow users to withdraw cryptocurrency from their Robinhood accounts between 2018 and 2022. The settlement also addresses Robinhood’s failure to fully disclose its trading and order-handling practices, which violated California’s Commodities Law (CCL).
Attorney General Bonta emphasized the importance of consumer protection in the fast-evolving crypto space, stating:
“Although cryptocurrency is relatively new, California’s consumer protection laws are strong and long-standing. Whether you’re running a brick-and-mortar business or a cryptocurrency platform, you must comply with these laws. This settlement sends a clear message that we are committed to safeguarding California consumers as technology continues to advance.”
Robinhood’s platform, known for facilitating trades of popular cryptocurrencies like Bitcoin, was found to have misled customers in several key ways. The investigation, sparked by consumer complaints, revealed that Robinhood sold cryptocurrency contracts without delivering the actual assets to its customers. During this time, customers were unable to withdraw their digital assets and were forced to sell them back to Robinhood to exit the platform.
In addition, Robinhood falsely claimed it would connect to multiple trading venues to ensure the best prices for customers, a promise that was not consistently met. The platform also did not disclose that trading venues, rather than Robinhood itself, were holding customer assets for extended periods in some instances.
As part of the settlement, Robinhood is required to take several corrective actions:
- Permit crypto withdrawals: Customers must now be allowed to withdraw their cryptocurrency to personal wallets.
- Align representations with practices: Robinhood must ensure that its disclosures about trading, order handling, and cryptocurrency prices accurately reflect its operations.
- Clarify custody of assets: The company must make it clear to users that it will hold their cryptocurrency and update its Customer Agreement to address potential settlement delays with trading venues due to network security concerns.
This settlement underscores the importance of transparency and accountability in the crypto industry, as regulators continue to crack down on platforms that fail to protect investors. Robinhood’s $3.9 million penalty serves as a reminder to both traditional and crypto-based businesses that consumer protection laws must be respected.