Robinhood Awaits Latest SEC Enforcement Action; Rep. Flood Presents SAB 121 Resolution

enforcement – Robinhood

Publicly-traded Robinhood Markets has received a Wells Notice after a face-to-face meeting between the Securities and Exchange Commission (SEC) Chair Gary Gensler and Robinhood CEO Vlad Tenev in January.

For a company offering crypto products and services, a Wells Notice signifies that an enforcement action by the SEC is on its way.

Robinhood explained in its required notice to investors yesterday:

“On May 4, 2024, [Robinhood Markets] received a ‘Wells Notice’ from the Staff of the SEC (the ‘Staff’) stating that the Staff has advised RHC that it made a ‘preliminary determination’ to recommend that the SEC file an enforcement action against RHC alleging violations of Sections 15(a) and 17A of the Securities Exchange Act of 1934, as amended. The potential action may involve a civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding and may seek remedies that include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities.”

See Robinhood’s 8-K filing (PDF) with the details.

more tips:

    • Crypto lawyers say SEC is ‘abusing’ the Wells process as part of ‘carpet bombing campaign’ against crypto – The Block

what you should know: With H.J.R 109 on the docket for a House Floor vote this week, the SEC led by its Democratic majority and Chair Gary Gensler may be gearing up for more actions to counter the “overreach at the SEC” narrative being driven by Republicans in the House.

enforcement – reaction

House Majority Whip Tom Emmer (R, MN) reacted on X to the Robinhood news yesterday by saying, “Regulation by intimidation” and then later adding, “These Wells notices seem to be Gary Gensler’s desperate, last-ditch attempts to intimidate and antagonize digital asset innovators.”

Commenting on X, Rep. John Rose (R, TN) said, “The [SEC] exceeded its mandate to protect investors and maintain fair, orderly markets by issuing a Wells Notice to [Robinhood], a precursor to enforcement action.   I’m proud to help lead the effort to provide clarity by passing the FIT for the 21st Century Act so that rogue regulators like [Gary Gensler] can focus on their mandate to protect investors and not disrupt innovation.”

Robinhood CEO Vlad Tenev said on X last night, “Over the last three years, we’ve reached a state of regulatory onslaught that is harmful to American companies and consumers. The SEC’s continued attack on crypto, coupled with recent rule proposals like the one related to predictive data analytics, mark yet another improper attempt by the administrative state to stifle innovation…” Read Tenev’s tweet thread.

Later, Coinbase CEO Brian Armstrong commented on Tenev’s tweet, “Welcome to the club – you’re in good company 🙂 The courts will help get clarity – but the right solution longer term is we need to elect pro-crypto candidates. This is why Coinbase has supported Fairshake superpac, and StandWithCrypto[.]org. Hope y’all can join us!”

enforcement – House Ag

During a digital assets hearing by House Agriculture last year, Dan Gallagher, Chief Legal Compliance and Corporate Affairs Officer, of Robinhood Markets, shared his company’s past registration attempts with the SEC which ended in the company pulling back after the SEC failed to respond.

Gallagher told Rep. John Rose at the hearing, “We actually came in and we did it proactively. We weren’t being investigated by the SEC. And we did it just because he wanted folks to do it. We thought it was good for our business and our customers. We went through a 16-month process of trying to register a special purpose broker dealer. And then we were pretty summarily told in March [of 2023] that that process was over and we would not see any any fruits of that effort.”

what you should know: The complaint from pro-crypto advocates has been 1) you can’t get your crypto company registered by the SEC even if you wanted to; 2) if you do try and register, you’re only putting your company on the radar for a possible enforcement action by the regulator at a later date.

enforcement  – today’s hearing

John Reed Stark, a former Chief at the SEC’s Office of Internet Enforcement and current anti-crypto advocate, will join three other witnesses at today’s House Financial Services (HFS) Capital Markets Subcommittee hearing titled, “SEC Enforcement: Balancing Deterrence with Due Process,” beginning at 10 a.m. ET in Rayburn.

Live streaming, testimony and relevant legislation are here.

Stark warned last year on X, “Get out of crypto platforms now, I can’t say it any plainer. Having worked as an attorney in the SEC Enforcement Division for almost 20 years (including 11 years as Chief of the SEC Office of Internet Enforcement), I believe that we now know for certain that crypto trading platforms are under a U.S. regulatory/law enforcement siege which has only just begun.”

what you should know: Stark has been one of the most vocal crypto critics there is through his commentary on X (@johnreedstark). His sharp and unrelenting opinions could make for fireworks with HFS Republicans.

House Floor vote confirmed

Rep. Mike Flood (R, NE) confirmed his House Joint Resolution 109 rescinding the Securities and Exchange Commission’s Staff Accounting Bulletin 121 (SAB 121) will be getting a House Floor vote this week (probably Wednesday or Thursday).

Last night, as a precursor to the vote, Rep. Flood offered remarks in support of the resolution to the House Rules Committee. He said in part:

“How can the SEC in good faith say they’re working to bolster investor protection when the agency has done the exact opposite with SAB 121? I would also ask the SEC, ‘How does limiting options and incentivizing concentrated risk help protect Americans?'”

“The fact is the SEC made a mistake. They did not consult with the banking regulators. They sought to go around Congress and they deprived Americans of a highly regulated avenue to hold digital assets. Not only will my resolution stop the SEC from running roughshod over the public rulemaking process, but it will also open the floodgates for competition and innovation within the digital asset ecosystem and the US financial system more broadly…”

View the 5-minute presentation.

And, read his complete remarks.

more tips:

what you should know: With no way forward in the Democratic-controlled Senate, this resolution is destined to remain a “message” in the 118th Congress. Consequently, the 119th Congress may be the first opportunity for any changes to SAB 121, which prevents the regulated financial industry from providing crypto custody.

stablecoin transformation

Nic Carter, a crypto venture capitalist who blew the whistle on what many see as an “Operation Choke Point” for crypto, put together a review of stablecoin arguments across academic and policy circles on Medium yesterday.

Read “Five perspectives on stablecoins – Evaluating the state of the academic and policy discourse.”

Carter is judicious in his critiques and finds improvement needed even in pro-stablecoin “takes” such as former CFTC Chair Timothy Massad’s (arguably) glass-half-full approach to “stables.”

Towards the conclusion of his piece, Carter writes, “…stablecoins will force a rethinking of the standard sanctions toolkit employed for foreign policy objectives. Personally, I’m very skeptical of the status quo in US sanctions policy. It appears to have manifestly failed in the case of Russia. As far as I can tell, the US seizing Russia’s reserves, and attempting to interrupt the flow of commodities to Russia via dollar networks has only accelerated de-dollarization.”

Read it.

cyber collaboration

CoinDesk sits down with the Justine Bone, executive director of Crypto ISAC (Information Sharing and Analysis Center), a new “neighborhood watchdog” specializing in cybersecurity analytics and comprised of crypto industry companies.

CoinDesk reports, “The unveiling of Crypto ISAC, which has been several years in the making, is something of a badge of honor, as it joins the crypto industry with many other established verticals that use information sharing to protect critical infrastructure, such as healthcare, retail, the financial sector, the automotive industry and many more.” Read more.

The new industry organization will be rolled out publicly at CoinDesk’s Consensus conference at the end of the month and promises a dashboard for industry participants that they’ll be able to login to and receive “threat intelligence.”

more tips:

crypto in the courts

Fox Business Eleanor Terrett provided an update on crypto cases in the courts on X yesterday.

In addition to the just-announced Robinhood Wells Notice, she said that “two high-profile lawyers representing [Custodia Bank] in its appeal against the {Federal Reserve] will file a notice of appearance. Ian Gershengorn, Acting Solicitor General under Obama, and Michelle Kallen, former Solicitor General of Virginia, have strong win records at the Supreme Court and the appeals courts.”

Also, Terrett said that on “Friday May 10, we’re slated to get responses from the [SEC] in two of [Coinbase’s] cases: The response brief to Coinbase’s request for an interlocutory appeal, and a response brief to Coinbase’s legal challenge to the SEC’s refusal to do crypto rule-making.” Read more on X.

specially interested

Invoking the “crypto bros” phrase made famous by Rep. Brad Sherman (D, CA), progressive lobbyist Public Citizen has published a new report on campaign donations by cryptocurrency firms and interests. “Super PACs backed by the cryptocurrency sector have raised more than $102 million, the third-most of all super PACs engaged in the 2024 election,” says Public Citizen.

See the report, “Cryptobros United: Crypto Super PACs Amass Over $”.

Politico’s Jasper Goodman reports on the news and notes the lobbyist’s focus on the crypto Super PACs of Fairshake, Protect Progress and Defend American Jobs.

what you should know: Public Citizen has been consistent in its anti-crypto positioning. Last year, the firm lent its support (and a quote) to the roll-out of New York Attorney General’s CRPTO Act. It also opposes the current resolution rescinding the SEC’s Staff Accounting Bulletin 121 and has aligned itself with Dem leadership on House Financial Services.


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