Robinhood, a popular trading platform, has recently received a Wells notice from the United States Securities and Exchange Commission (SEC), which led to a 2.5% decrease in its share price during pre-market trading, bringing it down to $17.95. The Wells notice signifies the conclusion of the SEC’s investigation into Robinhood’s U.S.-based crypto business and indicates a “preliminary determination” to recommend an enforcement action for alleged securities violations.

The investigation comes after Robinhood’s efforts to register with the SEC, as mentioned by the company’s chief legal, compliance, and corporate affairs officer, Dan Gallagher. Gallagher expressed disappointment with the SEC’s decision, stating that despite Robinhood’s attempts to work with the SEC for regulatory clarity, including trying to register, they were saddened by the issuance of the Wells Notice relating to their U.S. crypto business. Robinhood maintains that it does not consider its listed assets to be securities.

During a court testimony on June 6, Gallagher compared the regulatory landscape for digital assets to the equities markets in 1932. He emphasized the fragmented state regulatory frameworks and the absence of clear federal guidelines from the SEC and the Commodity Futures Trading Commission (CFTC) regarding the classification of digital assets as either securities or commodities.

Robinhood has taken steps to avoid potential securities violations by not listing certain tokens and avoiding crypto lending and staking services that have led other platforms to lawsuits. However, according to Robinhood’s chief compliance officer, there is a lack of federal regulatory clarity in the crypto space that has created challenges for compliance and hindered mainstream adoption of cryptocurrency.