State attorneys general are increasingly active in regulating the cryptocurrency industry, stepping in with enforcement actions that reflect divergent state priorities. A recent press release issued by the Florida Attorney General concerning its investigation of Robinhood highlights the evolving landscape and the need for financial industry participants to prepare for a patchwork of state-level investigations and enforcement actions.

Florida Launches Investigation of Robinhood

In July, the Florida Attorney General announced an investigation into Robinhood Crypto, LLC, focusing on Robinhood’s crypto trading platform business practices. The AG alleges that the trading platform deceptively marketed low fees and commissions for cryptocurrency trading. According to the release, Robinhood’s payment for order flow arrangements may have resulted in its customers paying higher prices than advertised. The investigation seeks detailed information about Robinhood’s payment for order flow practices and other aspects of its business model. Though the release discusses violations of Florida’s Deceptive and Unfair Practices Act, the release appears similar to 2020 allegations by the SEC concerning payment-for-order-flow practices at Robinhood’s equities brokerage and whether those practices complied with federal Best Execution requirements.¹

This is not the only state-level action Robinhood faces. In its most recent quarterly filing with the SEC, Robinhood has disclosed not just its cooperation with the Florida investigation but also noted two other ongoing investigations by state AGs. The New York Attorney General is investigating brokerage execution quality and price collars, while the Massachusetts Attorney General is investigating customer complaints, an overnight trading disruption in 2024, and Robinhood’s event contract offerings.

Takeaways

These recent state AG enforcement actions demonstrate that state-level scrutiny of cryptocurrency activities is intensifying, with states appearing to be more willing to apply state laws to market conduct that was previously subject to financial regulators’ oversight. Looking ahead, industry participants should expect that state AGs will:

• Pick up where the federal government leaves off: States may continue to pursue enforcement matters that the traditional financial market regulators have de-prioritized.
   
• Develop theories of cryptocurrency enforcement: The Florida enforcement action reflects one of several competing views of the role of the cryptocurrency industry. The Florida Attorney General stated: “Crypto is a vital component of Florida’s financial future, and President Trump’s efforts to advance the crypto market will make America stronger and wealthier. When consumers buy and sell crypto assets, they deserve transparency in their transactions.”
   
• Advance novel legal applications of state laws to financial markets activities: State enforcement actions may involve untested legal theories under broad-based consumer protection statutes and the like. This may pose a challenge to financial services industry participants seeking uniformity and predictability in regulatory activities; on the other hand, it may offer firms an opportunity to advance new arguments in response to novel enforcement theories.
   
• Pursue enforcement on an individualized basis: As Robinhood’s recent quarterly filing reflects, the financial industry might expect different states to focus their investigations and enforcement activity on different issues and topics. This may result in overlapping and patchwork enforcement patterns among State AGs.

Footnotes  

¹See In the Matter of Robinhood Financial, LLC, No. 3-20171 (SEC Dec. 17, 2020), available at https://www.sec.gov/files/litigation/admin/2020/33-10906.pdf.