Florida AG Investigates Robinhood Crypto Over Alleged Deceptive Marketing

Florida Attorney General James Uthmeier has initiated an investigation into Robinhood Crypto, alleging that the trading platform has misled customers by falsely promoting itself as the most cost-effective way to purchase digital assets. The investigation focuses on Robinhood's marketing claims of offering the "lowest cost on average" for crypto trading, which the AG's office believes may be deceptive.

The AG's office has issued a subpoena seeking extensive documentation from Robinhood, including organizational charts, marketing materials, employee training documents, and detailed records of all Florida user trades in 2024. The subpoena also requests documents showing how the platform determines pricing for transaction rebates, training materials for personnel discussing crypto trading costs with users, and records related to the sale or access of users' cryptocurrency trading data. The response to the subpoena is required by July 31.

The investigation centers on Robinhood's payment for order flow model, which generates revenue by routing customer trades to third-party firms that pay the platform for the opportunity to take the opposite side of customer trades. This model has been controversial, as it may lead to higher costs for customers despite Robinhood's low-fee claims. The AG's office alleges that this structure may result in trading on the platform being more expensive than competitors, directly contradicting Robinhood's marketing claims.

The probe comes at a time when crypto regulation is undergoing significant shifts, with the administration recently ending investigations into numerous crypto companies, including Robinhood. However, this state-level investigation focuses specifically on consumer protection rather than federal securities violations. The AG's office aims to assess potential consumer deception and ensure that any representations made publicly by a business are substantiated with credible evidence.

To defend against the allegations, Robinhood would need to produce substantive evidence supporting its claims regarding lower pricing and show transparency by disclosing details about its pricing methodology and the impact of payment for order flow arrangements on crypto trade execution and pricing for users. The AG's office believes that Robinhood is unlikely to succeed in challenging the subpoena on jurisdictional grounds, as consumer protection laws often have extraterritorial applicability when deceptive advertising affects residents within a specific jurisdiction.

This investigation marks a renewed focus on Robinhood's controversial payment for order flow model, which drew a significant fine in 2020 for failing to disclose how it could lead to inferior trade execution for customers. The AG's office aims to ensure that consumers are not misled by deceptive marketing practices and that the crypto market operates transparently and fairly.