- Subpoena involves the platform’s operations, crypto custody, and cryptocurrency listings
- Robinhood might be forced to stop trading cryptos that a court or regulator defines as securities
Crypto exchange Robinhood Markets received an investigative subpoena from the US Securities and Exchange Commission soon after FTX declared bankruptcy according to their 10-K filing. It involved the platform’s operations, crypto custody, and cryptocurrency listings, among other things.
The exchange got similar requests from the California Attorney General’s office about its coin listings, customer disclosures, customer asset custody, etc. They are cooperating with both regulators.
Exchange might be forced to cease trading
The filing shows that the platform might be forced to stop trading cryptos that a court or regulator defines as securities. Such measures might lead to sanctions, customer liabilities, or regulatory penalties.
Potential damages and their effects
Robinhood lists possible causes of damage to their brand and reputation in their filing. These include cybersecurity attacks, illegal, negligent, reckless, or fraudulent behavior by the management team, future restructurings, litigation, failure to comply with legal, tax and regulatory requirements, perceived or actual weakness in financial strength or liquidity, etc.
In addition, negative responses by customers or regulators to the business model or to particular features or services are a notable risk. Robinhood points out that such adverse events can impact the willingness of existing and potential customers to do business with them, which will affect trading volumes in turn.
Stock fell 18% when FTX filed for bankruptcy
Robinhood wrote that on November 8, 2022, the day FTX suspended non-fiat customer withdrawals, their Class A common stock lost 18%. The SEC sent the subpoena shortly after FTX filed for bankruptcy, which occurred in the wake of the bankruptcies of 3AC, Celsius, Voyager Digital Holdings, and other leading companies in the sector.
Robinhood concluded that their business has suffered and will probably continue to suffer due to adverse changes in economic, business, and political conditions that affect world financial markets.
