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  • S Pettigrove and L Misthos

Sheriff of Wall St issues Wells Notice to Robinhood



The US Securities and Exchange Commission (SEC) has issued another Wells Notice, this time to the crypto unit of the brokerage firm Robinhood Markets. The SEC recently issued a Wells Notice to Uniswap, making this the second Wells Notice issued to Web3 companies in as many months, and rumors abound that further Wells Notices have been issued which haven't seen the light of day.


A Wells Notice is a document used by the SEC to inform a person or entity that it has started an investigation and, unless the target can persuade them not to, that they intend to bring charges for securities laws violations. Wells Notices are typically followed by enforcement action, and almost always have been in the crypto space.


Robinhood had previously attempted to register as a special purpose broker for digital assets with the SEC. Spearheaded by Chief Legal Compliance and Corporate Affairs Officer, Dan Gallagher (who is also a former SEC commissioner), the company sought to effectively collaborate with the regulator to ensure compliance.


According to reports, Robinhood went through a 16-month process under which it supplied documents and information to the SEC, only to be abruptly told the process was over and the registration is unsuccessful. Mr Gallagher was seemingly less than impressed having received the Wells Notice, saying in a statement that he was disappointed:

After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business,
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.

The SEC has been unrelenting in its unofficial regulation by enforcement policy over the past few years and has been more and more transparent about seeking to prevent crypto businesses operating in the way that crypto permits, going so far as to allege in an appeal filing that Coinbase "decided to arrange its business affairs in ways that may make it costly to comply with existing law" when it seems obvious that Coinbase could not arrange their affairs in any other way while still using blockchain technology. After targeting Kraken, Binance and Coinbase, the SEC is seemingly pursuing crypto companies without any rhyme or reason and risking allegations that they are not in fact adhering to technology-neutral principles based regulation, but rather deciding upon the rules without consultation of the public or explaining how their position meets their mandate.


The regulation by enforcement approach has made its way to Australia, with the Australian Securities and Investments Commission (ASIC) recently suing a number of projects over products which were removed when the regulator reached out, but have still been the subject of prosecution, as well as misleading and deceptive representations claims being brought together with alleged financial services law breaches (in the case of BPS Financial). While ASIC does not have the large enforcement appetite (or budget) of its US counterparts, the absence of clear rules, even within a principles based regulatory approach coupled with enforcement actions without due guidance and prior warning is not a comfortable precedent to protect Australian users of crypto products.


By Steven Pettigrove, Michael Bacina and Luke Misthos


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