Florida Probes Robinhood Over Alleged Deceptive Crypto Trading Claims

Florida’s top prosecutor has initiated an investigation into the trading platform Robinhood, alleging that the company has been misleadingly promoting its cryptocurrency services as the most cost-effective option available. The investigation was launched by Florida Attorney General James Uthmeier, who issued a subpoena requesting various documents from Robinhood. Uthmeier accused the platform of violating Florida’s Deceptive and Unfair Practices Act, asserting that Robinhood’s claims about the lowest costs for crypto trading are deceptive.

In response to the allegations, Robinhood’s general counsel, Lucas Moskowitz, stated that the platform is transparent about its fees and that customers trade crypto at the lowest cost on average. Moskowitz emphasized that Robinhood provides clear disclosures about pricing information during the lifecycle of a trade, outlining the spread or fees associated with the transaction and the revenue Robinhood receives. He also expressed pride in Robinhood being a place where customers can trade crypto at the lowest cost on average.

The investigation centers around Robinhood’s practice of generating revenue through payment for order flow (PFOF). Florida’s attorney general alleges that this practice makes the platform more expensive because third parties that pay Robinhood for order flow might have to charge less favorable prices to remain profitable. PFOF is a common practice in both stock and crypto trading, where brokerage firms receive a fee for directing orders and executing trades to a particular market maker or exchange, usually in fractions of a penny per share.

In a December 2023 interview, Robinhood CEO Vlad Tenev defended the practice amid concerns that it created a conflict of interest where brokers weren’t always acting in clients’ best interests. Robinhood agreed to pay a $65 million fine in December 2020, with no admission of guilt, to settle charges from the SEC alleging, among other things, that Robinhood falsely claimed its customers’ orders were being executed at prices lower than other brokers.

Robinhood has until the end of July to respond to the subpoena. The platform claims on its website that traders can buy and sell crypto at the lowest costs on average in the US. The investigation highlights the ongoing scrutiny of cryptocurrency trading practices and the importance of transparency in financial transactions.