Robinhood (HOOD), the popular trading platform, received a Wells Notice from the Securities and Exchange Commission (SEC) on May 4. The stock pared earlier losses and rose about 2% on Monday.
“On May 4, 2024, RHC 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,” Robinhood said in a filing on Monday.
In a press release, Robinhood took a more combative tone, saying the company had already decided not to provide certain tokens or products that the SEC called securities in past actions, calling these “difficult choices.”
Robinhood Chief Legal, Compliance and Corporate Affairs Officer Dan Gallagher – a former SEC commissioner – said he was “disappointed” after trying to work with the regulator.
“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law,” he said in a statement.
Wells Notices are preliminary warnings informing companies that the SEC believes it has enough information to bring an enforcement action against a company, and usually lead to such actions by the regulator.
The company said that the potential action from the agency may include “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.”
UPDATE (May 6, 2024, 14:11 UTC): Updates headline, first paragraph to say shares have pared their earlier losses.
UPDATE (May 6, 2024, 13:15 UTC): Adds additional detail.
CORRECTION (May 6, 2024, 14:40 UTC): Corrects date of Wells Notice receipt to May 4.
