California Regulator Hits Robinhood Crypto with $3.9 Million Settlement Over Withdrawal Restrictions
Robinhood Crypto LLC, the cryptocurrency arm of popular trading app Robinhood, has agreed to pay a $3.9 million settlement to the California Department of Justice (DOJ) for restricting customer withdrawals and misleading users about its trading practices. The settlement, announced on Wednesday by California Attorney General Rob Bonta, marks the first public action by the state’s DOJ against a cryptocurrency company.
The investigation, which stemmed from consumer complaints, found that Robinhood violated the California Commodities Law (CCL) between 2018 and 2022. During this period, customers were unable to withdraw their cryptocurrencies from the platform and were forced to sell their assets back to Robinhood if they wanted to exit.
Attorney General Bonta emphasized the importance of consumer protection in the rapidly evolving cryptocurrency space. “While cryptocurrency is fairly new, California has strong and enduring consumer protection laws that protect Californians against misrepresentation, including by cryptocurrency companies,” he stated.
The settlement not only includes the monetary penalty but also imposes several conduct requirements on Robinhood. The company must now allow customers to withdraw their cryptocurrency assets to their own wallets, a practice that has become standard among most crypto exchanges. Additionally, Robinhood is required to ensure that its representations to customers about trading and order handling practices align with actual practices.
The investigation also revealed that Robinhood misled customers by claiming it would connect to multiple trading venues to ensure the most competitive prices, which was not always the case. Furthermore, the company falsely represented that it held all customer cryptocurrencies on its platform, when in fact, there were instances where it arranged for trading venues to hold customer assets for extended periods without disclosure.
As part of the settlement, Robinhood must update its customer agreement to disclose potential delays in settlement with trading venues, particularly in cases of network security concerns. The company is also required to report any incidents resulting in delayed settlements lasting longer than a week to the California DOJ.
Lucas Moskowitz, Robinhood’s general counsel, stated in an email, “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.”
This settlement comes as Robinhood continues to expand its presence in the cryptocurrency market. In June, the company announced plans to acquire crypto exchange Bitstamp, with the deal expected to close in the first half of 2025. Robinhood’s crypto transaction-based revenues have also shown significant growth, reaching $81 million in the second quarter of this year, a 161% year-on-year increase.
