Robinhood Crypto Settles California Case with $3.9 Million Over Crypto Withdrawal Restrictions

California DOJ’s first action against a crypto firm resolves allegations of withholding withdrawals and misleading practices.

Robinhood Crypto LLC has agreed to pay $3.9 million in a settlement with the California Department of Justice (DOJ), resolving allegations that the platform violated state laws by restricting customers from withdrawing their cryptocurrencies. The settlement marks the California DOJ's first public enforcement action against a cryptocurrency company, a significant move highlighting the state’s growing focus on regulating the digital assets space.

Between 2018 and 2022, Robinhood Crypto allowed users to buy and sell cryptocurrencies but prevented them from withdrawing their digital assets to personal wallets. This practice, the California DOJ found, breached the state's Commodity Code. During this period, customers were forced to sell their assets back to Robinhood to exit the platform, leading to accusations that the company misled users about the true ownership and control of their digital assets.

The investigation also revealed that Robinhood falsely advertised that it would connect to multiple trading venues to ensure customers received the best market prices. However, the California DOJ's findings showed that the platform did not always fulfill this promise, resulting in customers not receiving the best possible prices for their crypto trades.

As part of the settlement, Robinhood has agreed to implement several key changes. The company must now allow customers to withdraw their cryptocurrencies to personal wallets, improving transparency in its trading and order-handling processes. Robinhood must also provide clearer information regarding how customers' assets are held, as the investigation uncovered instances where Robinhood stored assets with third-party venues without disclosing this to users.

Lucas Moskowitz, general counsel for Robinhood, stated that the company is "pleased to put this matter behind us," emphasizing that the settlement fully resolves the DOJ's concerns over the company’s past practices. He added that Robinhood remains committed to making cryptocurrencies more accessible and affordable to users.

California Attorney General Rob Bonta hailed the settlement as a crucial victory for consumer protection in the cryptocurrency space. "Whether you’re a brick-and-mortar store or a cryptocurrency company, you must adhere to California’s consumer and investor protection laws," Bonta said.

This settlement comes at a time when Robinhood Crypto faces additional scrutiny from the U.S. Securities and Exchange Commission (SEC). The SEC has notified the company of its intent to pursue legal action over alleged violations of federal securities laws.

photo source / Blockonome