Thursday, September 28, 2023

Robinhood Crypto Fined $30 Million For Alleged NY Regulatory Violations

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Robinhood’s cryptocurrency division is $30 million fine by the New York Department of Financial Services for alleged money laundering and cybersecurity violations (through The Wall Street Journal). This is the state’s first enforcement action regarding cryptocurrency.

The settlement resolves the investigation opened by the NYDFS last March and disclosed by Robinhood in a file with the Securities and Exchange Commission before the company went public. While Robinhood initially estimated that the NYDFS would fine the company up to $15 millionit later the submission changed to reflect an estimated fee of $30 million.

According to the NYDFS, Robinhood Crypto’s cybersecurity program had “critical flaws” that “did not fully cover” the company’s operational risks. The NYDFS also alleges that Robinhood’s crypto arm had “significant deficiencies” in its money laundering compliance program and that it violated consumer protection laws by not having a phone number on its website dedicated to handling complaints from customers.

As his business grew, Robinhood Crypto failed to invest the right resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the department’s anti-money laundering and cybersecurity regulations, Adrienne Harris, the NYDFS superintendent, said in a statement.

“We are pleased that the settlement in principle reached last year and previously disclosed in our public filings is now final,” said Cheryl Crumpton, Robinhood’s associate general counsel for litigation and regulatory enforcement. “We have made significant progress in building industry-leading legal, compliance and cybersecurity programs and will continue to prioritize this work to best serve our customers.”

In 2020, the SEC charged Robinhood $65 million for supposedly misleading customers about how it makes money. Last June, the Financial Industry Regulatory Authority (FINRA) fined Robinhood nearly $70 million to settle claims for failing to protect customers on the trading platform. Around the same time, the The US Department of Justice has seized Robinhood CEO Vlad Tenev’s phone while investigating how Robinhood dealt with the GameStop stock frenzy last year.

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