(Bloomberg) — Robinhood Markets Inc.’s cryptocurrency operations are the subject of an investigation in Florida, accusing the popular fintech platform of using deceptive practices to mislead consumers about costs.
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The Menlo Park, California-based firm is “falsely promoting” its trading platform as the “least expensive way to purchase crypto,” the state Attorney General’s office alleged in a press release. As part of the investigation, the AG’s office issued a subpoena to Robinhood, demanding marketing materials and other internal documents related to its crypto services and pricing structure.
“When consumers buy and sell crypto assets, they deserve transparency in their transactions,” said Florida Attorney General James Uthmeier, is the statement. “Robinhood has long claimed to be the best bargain, but we believe those representations were deceptive.”
The firm has until the end of July to respond to the subpoena, according to the statement.
In a statement, Robinhood’s general counsel, Lucas Moskowitz said: “Our disclosures are best-in-class — 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. We are proud to be a place where customers can trade crypto at the lowest cost on average.”
Robinhood makes money by sending its customers’ trades to third-party companies instead of executing the trades itself. These third-party firms then pay the company for the chance to fulfill those trades — a system called payment for order flow (PFOF). This process allows Robinhood to offer commission-free trading to its users while still generating revenue behind the scenes. The probe would examine if Robinhood’s PFOF system negatively impacts fairness or transparency in its crypto pricing and produces higher fees for its users.
The SEC signed a rule last year to require stock brokerages that work with ordinary investors to disclose more price and trade-execution information — including payment for order flow — as part of a broader overhaul being advanced by the regulator, Bloomberg reported.
–With assistance from Nathaniel Popper.
(Updates with comment from Robinhood in fifth paragraph.)
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