Robinhood said it expects to pay a $30 million fine as part of anti-money laundering probe of its crypto business

Robinhood
  • Robinhood said it expects to pay a $30 million penalty related to an anti-money laundering probe of its crypto business.
  • The penalty would be on top of a $70 million fine from FINRA, and a $65 million settlement with the SEC.
  • The disclosure came in an amended S-1 filed with the SEC on Monday.
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Robinhood said it expects to pay a $30 million penalty in relation to an anti-money laundering probe of its cryptocurrency business, according to an amended S-1 filed with the SEC on Monday.

The online trading app said that in July of 2020, the New York Department of Financial Services said Robinhood’s crypto unit had a number of “matters requiring attention,” primarily focused on anti-money laundering and cybersecurity-related issues.

In March, a subsequent investigation by the Consumer Protection and Financial Enforcement division of the NYDFS found alleged violations of anti-money laundering and New York Banking Law requirements, “including the failure to maintain and certify a compliant anti-money laundering program,” according to the filing.

Other violations include of cybersecurity and virtual currency requirements, “including certain deficiencies in our policies and procedures regarding risk assessment, lack of an adequate incident response and business continuity plan, and deficiencies in our application development security,” the filing said.

Robinhood said its crypto business has reached “a settlement in principle with respect to these allegations, subject to final documentation.” The brokerage firm expects to pay a monetary penalty of $30 million and engage a monitor, likely to prevent further violations.

This isn’t Robinhood’s first multi-million dollar penalty in relation to its business operations. In December, the company agreed to pay a $65 million settlement with the SEC for misleading its customers about revenue sources and failing to satisfy its duty of best execution for customer trades.

And in June, Robinhood agreed to pay a $70 million fine with FINRA to settle claims that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading, the regulator announced today.

The $165 million in total one-time fines Robinhood has been ordered to pay represent 32% of the company’s first quarter revenues of $522 million.

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The SEC has delayed a decision on another bitcoin ETF, putting off approval of a fund from WisdomTree

Gary Gensler, SEC Chairman, financial regulator, alone, testifying
Gary Gensler’s SEC has increased its focus on cryptocurrencies

  • The SEC on Tuesday delayed WisdomTree’s application for a bitcoin ETF, adding to a pile-up of applications sitting on the agency’s docket.
  • “There’s nothing [in the SEC’s order] that we’re not saying ourselves as an ETF issuer,” Ryan Louvar, general counsel at WisdomTree, told Insider.
  • But the agency now may be warming up to the view, expressed by many bitcoin fund applicants, that not approving a regulated ETF could present its own risks.
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The SEC on Tuesday delayed WisdomTree’s application for a bitcoin ETF, adding to a pile-up of applications sitting on the agency’s docket.

In an order putting off approval, the SEC called for public comment on a number of concerns, including whether the bitcoin market is subject to manipulation. The agency similarly asked for public comment in June.

“There’s nothing [in the SEC’s order] that we’re not saying ourselves as an ETF issuer,” Ryan Louvar, general counsel at WisdomTree, told Insider previously. “Bitcoin is volatile. It’s a speculative asset.”

But the SEC now may be warming up to the view, expressed by many bitcoin fund applicants, that not approving a regulated ETF could present its own risks. In Tuesday’s filings – as in previous ones – the agency asked for comment on whether “manipulation concerns … are outweighed by quantifiable investor protection issues.”

“I was encouraged by that step, that the SEC is at least taking incremental steps here,” said Louvar.

SEC Chair Gary Gensler has worried aloud that the bitcoin market, as currently structured, offers no real investor protections or any way to prevent manipulation. That has made some in the crypto industry bearish on the prospects for ETF approval this year.

Read more: Crypto traders have staked billions of dollars on Kraken over the last year to earn interest. The exchange’s product chief explains what staking is, and shares 3 of the top-yielding tokens on its platform.

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Space-transport SPAC Momentus hit with $8 million SEC fine after misleading investors over propulsion technology

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.   REUTERS/Jonathan Ernst
FILE PHOTO: SEC

  • The SEC announced charges on Tuesday against parties involved in a SPAC deal to take a space-flight company public.
  • A $1.2 billion SPAC deal sought to merge with Momentus, a private start-up working on transporting satellites into space.
  • But a test mission yielded “no data to suggest that that thruster would deliver an impulse of any commercial significance.”
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The SEC on Tuesday announced charges against parties involved in a $1.2 billion space-transport SPAC for defrauding investors and obscuring the CEO’s status as a national security risk.

“This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors,” said SEC Chair Gary Gensler in a statement.

The SPAC, Stable Road Acquisition Corp, had sought to merge with Momentus, a private start-up, wit the intention of taking it public. Momentus’s key offering was a “microwave electro-thermal water plasma thruster,” a way of zapping water vapor to propel a spacecraft, with the aim of transporting satellites into space.

But Momentus’s propulsion tech failed to show results, according to SEC filings. A test mission fell well short of the company’s own benchmarks, and a former Momentus employee said that the test yielded “no data to suggest that that thruster would deliver an impulse of any commercial significance.”

That didn’t stop the company’s CEO, Mikhail Kokorich, from boasting of its successes.

“Water plasma propulsion is now technologically mature enough to be baselined for operational in-space transportation missions,” he told a trade publication in 2019, citing the Momentus test flight.

Meanwhile, Kokorich, who is a Russian citizen, had caught the eye of US authorities. CFIUS, a government body that scrutinizes foreign investment, flagged Kokorich as a national security threat, denying him permits and requiring him to divest from Momentus.

Kokorich’s work visa was revoked. He applied for political asylum as a Russian dissident, but was denied. When the FBI and other agencies showed up at Momentus HQ to question employees, Kokorich was detained at an immigration detention center, though he was let go on bond.

Little of this was disclosed to investors. Despite Momentus disclosing in filings that it was “highly dependent” on Kokorich personally, he did not reveal his asylum application had been rejected. His presence at the company also prevented Momentus from getting crucial permits approved, according to the SEC.

The SEC is pursuing litigation against Kokorich in federal court, while all other parties have settled for a total penalty of $8 million. The $1.2 billion SPAC deal could still go ahead, though the SEC is requiring that the company let investors pull out freely.

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The SEC is reportedly looking into conflicts of interest among major banks in the SPAC deal-making process

The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington, July 6, 2009. REUTERS/Jim Bourg
The headquarters of the U.S. Securities and Exchange Commission are seen in Washington

  • The SEC is investigating banks over conflicts of interest in the SPAC deal-making process, Reuters first reported.
  • In particular, the regulator is looking into instances of banks acting as underwriter and adviser on the same deal.
  • The SEC has requested information from top SPAC underwriters including Morgan Stanley and Goldman Sachs.
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The US Securities and Exchange Commission is investigating major banks over conflicts of interest in the SPAC deal-making process that exploded in the past year, Reuters first reported.

In particular, the regulator is looking into instances wherein the banks acted both as the underwriters and the advisers on the same SPAC deal and whether certain fee structures may have incentivized underwriters to secure unsuitable mergers, sources told Reuters.

“The big issue for the SEC is to understand if the advisers are conflicted,” one of the sources told Reuters.

The SEC, according to sources, has requested information from top SPAC underwriters including Citigroup, Credit Suisse, Morgan Stanley, and Goldman Sachs. Requests do not imply malpractice.

SPACs are shell companies that list with the aim of merging with private companies and taking them public.

This method is typically done in lieu of an IPO or a direct listing and has garnered support from Wall Street heavyweights as well as pop icons and professional athletes.

Management teams of SPACs, also known as sponsors, generally pay banks a 5.5% fee for underwriting the process. Banks, however, can earn more if they also represent the merger target.

Such conflict of interest could harm investors, sources told Reuters.

Under the current law, banks are not required to disclose their fees in regulatory filings while law and accounting firms are.

SPACs have exploded in popularity in the last year. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But over halfway through 2021 alone, data already show 368 SPACs that have raised $190 billion, comprising 59% of initial public offerings.

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Didi pares losses after China cybersecurity review sends stock plummeting

A Didi logo is seen at the headquarters of Didi Chuxing in Beijing, China November 20, 2020. REUTERS/Florence Lo/File Photo/File Photo
A Didi logo is seen at the headquarters of Didi Chuxing in Beijing on November 20, 2020.

  • Shares in Didi Chuxing closed 7% higher on Friday, paring steep losses over the course of the week.
  • Chinese regulators on Friday moved to shutter dozens of apps run by Didi.
  • Some members of Congress have blasted China’s move, calling for an SEC investigation into whether US investors were misled.
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Shares in Didi Chuxing rose more than 7% on Friday days after a surprise probe by China’s cybersecurity regulator sent the stock tumbling.

The stock closed at $12.03, up 7.3% on the day.

The company’s US debut on June 30 saw shares peak as high as $18. But the weekend announcement from authorities that Didi had violated Chinese privacy laws crashed the stock as soon as markets opened. It bottomed out at $11 before regaining some lost ground.

But the bad news hasn’t let up for Didi. Chinese regulators on Friday moved to shutter dozens of apps run by Didi, as well as cracking down on third-party websites giving access to its services. The company’s main app had been removed over the weekend as the cybersecurity review was launched.

Some members of Congress have blasted China’s Didi move, calling for an SEC investigation into whether American investors were misled. Didi raised $4.4 billion in its IPO.

“When did Didi know that it was exposed to regulatory risk? And even if Didi didn’t know for certain at the time of the IPO that its app would be banned, why didn’t it disclose that risk in its prospectus?” former SEC commissioner Joseph Grundfest told the Financial Times.

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Elizabeth Warren demands answers from the SEC on crypto regulation by the end of July

senator elizabeth warren
  • In a letter addressed to the chairman of the SEC, Senator Elizabeth Warren demanded answers on crypto regulation by July 28.
  • Warren, who’s part of the Senate Banking Committee, is concerned about risks to consumers and investors from the $1.3 trillion market.
  • She said Congress may need to act to ensure the SEC has proper authority to close existing regulation gaps.
  • See more stories on Insider’s business page.

In a Wednesday letter addressed to SEC Chairman Gary Gensler, Sen. Elizabeth Warren demanded the agency answer a series of questions related to cryptocurrency regulation – and said she expects an answer no later than July 28.

The Massachusetts Democrat – who serves as chair of the Senate Banking Committee’s Subcommittee on Economic Policy – laid out her goal of protecting investors in the expanding market for digital currencies.

“The increased use of cryptocurrency exchanges presents unique risks to consumers,” Warren said in the letter. “Although they describe themselves as cryptocurrency ‘exchanges,’ these platforms lack the same types of basic regulatory protections as traditional national securities exchanges like the New York Stock Exchange or Nasdaq.”

Warren said the information she’s requested will help Congress determine if it needs to act to ensure the SEC has the needed authority to close existing gaps in regulation. Those gaps, she said, leave investors and consumers vulnerable to dangers in what she called a highly opaque and volatile market.

Warren also said in her letter that nearly 7,000 people in the US reported losses of $80 million from cryptocurrency scams between October 2020 and March 2021.

“The harms to consumers as a result of this under-regulated market are real and continue to proliferate in the absence of effective SEC regulations,” she said.

Warren presented five questions to the SEC, beginning with:

  1. “Do you believe that cryptocurrency exchanges are currently operating in a ‘fair, orderly, and efficient’ manner? If not, what problems has the SEC identified that are associated with the use of these exchanges?”

The cryptocurrency market this year has notched a number of milestones including exceeding a valuation of $2 trillion in April as bitcoin topped a $1 trillion market value . Those moves were made alongside the trading debut of Coinbase, the largest crypto exchange in the US. Wall Street banks and other institutions have ramped up their business exposure to the market. Meanwhile, the SEC is considering the application of 13 bitcoin ETFs.

But the cryptocurrency market’s valuation has since fallen to roughly $1.4 trillion because of a sell-off in bitcoin, ether, and other digital currencies.

Read more: A crypto evangelist shares 5 altcoins that could explode in value, including one with 100-times potential – and breaks down his 3-part strategy for betting on speculative but potentially rewarding tokens

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13 applications for a bitcoin ETF are in limbo as the SEC deliberates. Some fund managers see a double standard around how the regulator treats crypto.

WASHINGTON, DC - JULY 30: Commodity Futures Trading Commission Chairman Gary Gensler testifies before the Senate Banking, Housing and Urban Affairs Committee in the Dirksen Senate Office Building on Capitol Hill July 30, 2013 in Washington, DC. Gensler and Securities and Exchange Commission Chairman Mary Jo White testified and took questions from Senators during the hearing titled, "Mitigating Systemic Risk in Financial Markets through Wall Street Reforms." (Photo by Chip Somodevilla/Getty Images)
Gary Gensler is working on Biden’s financial regulatory plans.

If you invest in crypto, “ask questions and demand clear answers.” That advice, from former SEC Chair Jay Clayton, is now being put to practice as his successor, Gary Gensler, grills the industry over pending approval of a bitcoin ETF.

Yet as the seven-year quest to get the regulatory go-ahead drags on, some fund managers and crypto executives who spoke with Insider question whether Gensler’s SEC has taken too hawkish an approach.

These bitcoin ETF proponents say common concerns about crypto, like volatility and potential market manipulation, could be said of other asset classes, too. They note that Canada, Europe, and Brazil all have functioning bitcoin funds in circulation. And they argue that repeatedly putting off approval carries its own set of risks.

Anxieties that the bitcoin market may be rife with fraud and manipulation are “a bit of a red herring,” said Will Rhind, CEO of GraniteShares, which filed for a bitcoin futures ETF in 2017.

“There are many markets that are open to manipulation, but that doesn’t stop them from existing or people from launching products in them,” he said, pointing to existing ETFs for penny stocks and oil, long swayed by petrostate cartel OPEC.

Ryan Louvar, general counsel at WisdomTree, which manages several European bitcoin ETFs and has applied for one in America, shares the sentiment. The regulatory standard applied to bitcoin funds has been “very, very high – maybe even novel,” he said.

In WisdomTree’s view – one echoed across much of the industry – the SEC’s slow roll on greenlighting a bitcoin ETF is far from risk-free. As the agency delays, demand for bitcoin and other crypto products is not letting up. The result is that the crypto-curious are left with more dubious avenues for investing their money. On balance, such risks to retail investors ought to outweigh the SEC’s manipulation concerns, Louvar said.

It is a view that the SEC is, at a minimum, curious about. In a call for industry comment last month, the commission asked precisely this question: how should the investor protections brought by regulated bitcoin ETFs weigh against fears of manipulation?

Across the Atlantic, that question has been asked and answered, said Jason Guthrie, WisdomTree’s Europe head. Under the EU’s “passporting” regime – which lets financial-services firms seek regulatory approval in 30 European nations simultaneously – crypto ETFs have multiplied across the continent. Sweden was the first domino to fall, starting in 2015, prompting EU-wide approval. The last major holdout is the UK, tied down by messy Brexit negotiations.

But while Europe’s ETF experience may make the SEC look like a laggard, the broader reality is more subtle, said Guthrie. American regulators have moved proactively to regulate crypto-custodial companies such as Coinbase Custody and Fidelity Digital Assets. For evidence, look no further than the fact that many European-listed crypto ETFs, like those of WisdomTree and ETC Group, use custodians based in America.

Regulators across the world are “looking at different things and at different paces,” said Guthrie.

Nor do all fund managers fault the SEC for taking its time. Some think approving a bitcoin ETF opens the floodgates to all manner of newfangled crypto products.

“It’s not just about bitcoin,” noted Greg King, CEO of Osprey Funds, which runs an off-exchange bitcoin fund. SEC staffers “have to be thinking in the back of their head – how is this going to set a precedent for anything else?”

Leah Wald, CEO of Valkyrie, another bitcoin ETF hopeful, added the SEC is being “deliberate” in combing through an industry that has rapidly matured. She said she wished the process was faster but that the concerns were fundamentally “valid.”

SEC approval may ultimately rest on the industry developing surveillance methods that give regulators a handle on when and where markets are being manipulated, said Chen Arad, COO of Solidus Labs, a monitoring firm that works with regulators.

“Once you open the door, it’s harder to go back. The best thing the industry can do is work on providing assurances through data-sharing agreements and shared surveillance,” he said.

The SEC didn’t respond to a request for comment.

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The Justice Department has reportedly opened a probe into electric car startup Lordstown Motors

Vice President Mike Pence at the Unveiling of the Lordstown Endurance_June 25, 2020
Vice President Mike Pence at the unveiling of the Lordstown Endurance.

  • The Justice Department is probing Lordstown Motors, the WSJ reported.
  • The SEC began probing the company earlier this year following accusations from a short-seller that the company misled investors.
  • A Lordstown spokesperson did not respond to a request for comment about the reported probe by the DOJ.
  • See more stories on Insider’s business page.

The US Justice Department is probing electric car startup Lordstown Motors, sources familiar with the matter told The Wall Street Journal.

The US attorney’s office in Manhattan has begun looking into the company and the inquiry is in the early stages, according to the publication. The Securities and Exchange Commission started looking into the company as well earlier this year following accusations from a short-seller that the company misled investors.

Lordstown has said it was cooperating with the SEC investigation. A Lordstown spokesperson did not respond to a request for comment about the reported probe by the DOJ.

Earlier this year, Hindenburg Research published a report alleging the electric-truck startup has misled investors regarding demand for its product, which the company’s CEO at the time had quantified as over 100,000 pre-orders.

The short-seller’s report caused the company’s stock to plummet. Since, Lordstown Motors has continued to struggle. Last month, its CEO Steve Burns, as well as several other employees resigned.

Read more: The CEO of Tesla wannabe Lordstown Motors is out. Insiders say he exaggerated demand and hired interns to do his engineering.

On the same day, the company released the results of its internal investigation into the short-seller’s allegations. It said that while it didn’t find any issues with the vehicle or its technology, Lordstown Motors had caused confusion about the demand for its electric truck. The internal investigation found that some preorders – letters of intent that require only a signature – had been secured from companies that did not intend to purchase the vehicle, while other companies that had signed letters of intent did not have enough capital to purchase it.

On June 15, Lordstown Motors’ President Rich Schmidt said the company had remedied the issue and had “basically binding” pre-orders. That same week, the company clarified that none of its pre-orders are binding.

Lordstown Motors has also been questioned for its executives’ trading after five Lordstown executives sold large portions of their stock ahead of the release of a lackluster financial report from the company that sent shares downwards.

The company has said it plans to start limited production of its electric pickup truck in September, though the company has already delayed the launch of the vehicle five times.

Read The Wall Street Journal’s full story.

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Robinhood’s IPO filing reveals over 50 lawsuits related to trading restrictions it imposed during January’s meme-stock madness

Vlad Tenev
Vlad Tenev, co-founder and co-CEO of investing app Robinhood.

  • Robinhood’s IPO filing shows the company faces more than 50 legal complaints stemming from January’s meme-stock trading.
  • Customers were angered by Robinhood’s move to temporarily stop users from buying certain stocks.
  • Robinhood said it is cooperating with investigations by officials.
  • See more stories on Insider’s business page.

Retail trading platform Robinhood is facing more than 50 lawsuits stemming from the restrictions it put in place to manage the trading mania in January surrounding so-called meme stocks, according to the company’s IPO filing.

Robinhood in its S-1 filing with the Securities and Exchange Commission on Thursday said it has become aware of about 50 putative class lawsuits and three individual actions that have been filed against it in various federal and state courts. It said two of the class action complaints have been voluntarily dismissed with prejudice.

The legal complaints follow Robinhood’s move in January of temporarily stopping users from buying shares of GameStop, AMC Entertainment and other stocks whose prices quickly soared as retail investors defended the shares from short-sellers.

“The complaints generally allege breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty and other common law claims,” Robinhood said in the SEC filing. It added that several complaints further allege federal securities claims, federal and state antitrust claims, and certain state consumer protection claims based on similar factual allegations. It said 19 of the putative class actions also name other broker-dealers or market makers as defendants.

The company said it’s being investigated by regulators including staff at the SEC and the antitrust division of the US Department of Justice. It said Vladimir Tenev, Robinhood’s co-founder and CEO, and others have received requests for information and testimony, subpoenas and that the US Attorney’s Office executed a search warrant to obtain Tenev’s cell phone.

“We are cooperating with these investigations and examinations,” Robinhood said.

The company on Wednesday agreed to pay nearly $70 million to settle claims by FINRA that the brokerage misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading.

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Cathie Wood’s Ark Invest is working with provider 21Shares to create a bitcoin ETF

Cathie Wood

Ark Invest – the firm run by star stock picker Cathie Wood – has partnered with exchange-traded fund provider 21Shares to to create a bitcoin exchange-traded fund, according to a filing with the Securities and Exchange Commission.

The ARK 21Shares Bitcoin ETF will track the S&P Bitcoin index and trade on the Cboe BZX Exchange under the ticker ARKB. Its investment objective is quite simple: track the price of bitcoin.

A prominent bitcoin bull, Wood has been loading up on bitcoin-related investments such as Grayscale Bitcoin Trust and Coinbase Global over the last few months.

The proposed bitcoin ETF joins a long list of over a dozen applications waiting for approval from the SEC. The agency for its part has recently postponed another decision to approve a bitcoin ETF.

Bitcoin has gained mainstream adoption of late, soaring above a market capitalization of $1 trillion. It has however been trading rangebound in the past days at just half of its $64,000 peak in April.

Read more: Here are 3 altcoins that could surge by 1000% – including the eco-friendly version of bitcoin – according to a crypto analyst and entrepreneur who vets early-stage projects

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