Florida Investigates Robinhood Over Alleged Crypto Trading Costs

Florida’s Attorney General has launched an investigation into Robinhood’s cryptocurrency business, alleging that the company has misled customers about the costs associated with trading digital assets. The inquiry was initiated on Thursday, with the Attorney General’s office issuing a subpoena to Robinhood Crypto, LLC, seeking a wide range of internal documents related to the company’s crypto offerings and fee structures.

The investigation centers on claims that Robinhood falsely promotes its trading platform as the "least expensive way to purchase crypto." The Attorney General’s office alleges that Robinhood induces customers to its platform by claiming to offer the lowest average cost for trading cryptocurrency and promising to deliver the most crypto for the customer's money. However, evidence suggests that trading on Robinhood may be more costly than on other exchanges, due to the company's reliance on payment for order flow (PFOF). This model involves third-party firms taking the opposite side of a trade posted by Robinhood users, potentially leading to less favorable prices for customers.

The subpoena demands a comprehensive set of documents, including reporting lines within Robinhood, details of former and current staff in marketing and trading divisions, documents on PFOF arrangements, training guides, competitor analyses, overall crypto trading and transaction data, and records of trades placed by Florida residents. Advertising plans and internal discussions of fees and commissions are also included in the request. Robinhood must comply with the subpoena by the end of July.

The probe will examine whether Robinhood’s business model hides costs, undermines fairness, or leads to increased fees for its users. The investigation comes as regulatory bodies increasingly focus on ensuring transparency and fairness in the cryptocurrency industry. The Attorney General’s office aims to ensure that Robinhood’s business practices comply with Florida law and that customers receive accurate information about the costs of trading cryptocurrency.

This investigation serves as a reminder to trading platforms of the importance of accurate advertising and compliance with legal standards. As the popularity of cryptocurrency continues to rise, regulatory scrutiny of trading platforms and their practices is likely to increase. The outcome of this investigation could have implications for other cryptocurrency trading platforms and their business models.