On 4 August 2024, California Attorney General Rob Bonta announced a $3.9 million settlement with Robinhood Crypto, LLC (Robinhood), following an investigation into alleged violations of California’s consumer protection laws between 2018 and 2022. The investigation centered on claims that Robinhood, during this period, prevented customers from withdrawing cryptocurrency from their accounts and failed to fully disclose key details about its trading and order handling practices. The settlement not only includes a financial penalty but also imposes conduct requirements to improve transparency moving forward.
Attorney General Bonta stressed that cryptocurrency companies are not exempt from California’s consumer protection laws. He noted that the settlement sends a message that both traditional and crypto companies must adhere to these laws, especially in light of advancing technologies.
Robinhood, a popular platform — especially among millennials — for trading stocks and cryptocurrencies, has faced growing scrutiny as digital currencies gain popularity. The California Department of Justice’s investigation found that Robinhood violated the California Commodities Law (CCL) by allowing users to buy cryptocurrencies through contracts without delivering the assets. Customers who wanted to exit were forced to sell their assets back to Robinhood, as they couldn’t transfer them to external wallets.
The investigation also revealed that Robinhood allegedly misled customers by claiming it connected to multiple trading venues for competitive pricing, which may not always have been the case. Additionally, it is claimed that while Robinhood stated it held all customer-purchased cryptocurrencies, there were instances where third-party venues held the assets, a fact not disclosed to customers.
As part of the settlement, Robinhood agreed to several conditions aimed at protecting consumers:
- Withdrawals: Robinhood must allow customers to transfer cryptocurrency to external wallets, addressing the issue of customers being forced to sell back to the platform.
- Transparency: Robinhood is required to ensure its public representations align with its actual trading practices, including disclosing how orders are handled and how prices are determined.
- Custody of Assets: Robinhood must update its Customer Agreement to disclose potential delays in settling with trading venues during network security concerns and report any incidents of delayed settlement longer than a week.
A spokesperson for Robinhood told CoinDesk that this settlement concludes the inquiry, stating, “there is no ongoing investigation, and this resolves the CA AG inquiry.” Lucas Moskowitz, Robinhood Markets’ general counsel, also expressed satisfaction with the outcome, telling CoinDesk, “We are pleased to put this matter behind us. The settlement fully resolves the Attorney General’s concerns related to historical practices, and we look forward to continuing to make crypto more accessible and affordable to everyone.” However, according to CoinDesk, Robinhood Crypto is still facing scrutiny from the U.S. Securities and Exchange Commission (SEC), which informed the company in May that it is preparing to file a lawsuit over alleged violations of federal securities laws.
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