Key Insights
- Florida Attorney General is investigating Robinhood Crypto for allegedly making deceptive claims about offering the lowest-cost crypto trading in the U.S.
- The probe focuses on Robinhood’s PFOF model, which may result in less favorable pricing for users.
- Robinhood denies wrongdoing, claiming transparency in its fee disclosures, while its stock rose 4.4% despite the regulatory scrutiny.
Tallahassee (MarketsXplora) – Florida’s attorney general has launched an investigation into Robinhood Crypto LLC, the digital asset arm of Robinhood Markets Inc., accusing the company of misleading consumers with claims that it offers the lowest-cost crypto trading platform in the United States.
In a sharply worded statement released Thursday, Attorney General James Uthmeier alleged that Robinhood’s marketing amounts to deceptive advertising, potentially violating Florida’s Deceptive and Unfair Practices Act. The state has issued a subpoena demanding internal documents supporting the company’s widely publicized claim that users “trade crypto at the lowest cost on average.”
“Robinhood has long claimed to be the best bargain, but we believe those representations were deceptive,” said Uthmeier.
Florida’s investigation zeroes in on Robinhood’s central value proposition—cost-efficiency. On its website and in promotional materials, the firm touts itself as the “least expensive way to purchase crypto.” But according to state officials, there’s no evidence to substantiate that assertion.
Robinhood’s Order Flow Under Investigation
A central focus of the probe is Robinhood’s use of payment for order flow (PFOF), a controversial practice in which the platform routes trades through third-party market makers who pay Robinhood for access. Florida authorities argue this arrangement may result in less favorable pricing for users.
“Third parties that pay Robinhood for order flow might have to charge less favorable prices to be profitable,” the attorney general’s office said, challenging the platform’s promise of value.
Robinhood, which built its brand around commission-free stock and crypto trading, generates much of its revenue through PFOF—a model that’s been criticized for potential conflicts of interest. In a December 2023 interview with CNBC, Robinhood CEO Vlad Tenev defended the practice, arguing it benefits retail traders despite criticism that brokers may not always act in clients’ best interests.
The company has faced regulatory scrutiny before. In December 2020, Robinhood agreed to pay a $65 million fine—without admitting guilt—to settle U.S. Securities and Exchange Commission charges that it misled customers by claiming their orders were executed at more favorable prices than competitors offered.
Robinhood Responds: “We’re Transparent”
Lucas Moskowitz, Robinhood’s general counsel, pushed back against the allegations. In a statement to Cointelegraph, Moskowitz said the firm provides “best-in-class” transparency and that its cost claims are grounded in data.
“We disclose pricing information to customers during the lifecycle of a trade that clearly outlines the spread or the fees associated with the transaction and the revenue Robinhood receives,” Moskowitz said. “We are proud to be a place where customers can trade crypto at the lowest cost on average.”
Robinhood has until the end of July to respond to the subpoena and provide supporting documents.
Read also: Robinhood Crypto Settles California Probe for $3.9 Million Over Withdrawal Restrictions
Despite the regulatory heat, Robinhood’s stock closed Thursday up 4.4% at $98.70, buoyed by a broader crypto market rally. The gains brought the share price within striking distance of its all-time high of $100.88. However, in after-hours trading, the stock dipped to $97.23—a 1.49% decline.
The upbeat investor sentiment follows a month-long 30% rally in Robinhood shares, fueled in part by the company’s strategic moves into blockchain technology and tokenization. Still, the outcome of Florida’s investigation could cast a shadow over its public image, particularly as it looks to solidify its position in a rapidly evolving crypto landscape.
While authorities in Tallahassee press for answers, Robinhood faces mounting pressure to defend not just its marketing, but the business model behind it.