Robinhood Crypto Pricing Under Investigation for Deceptive Practices

Florida Attorney General James Uthmeier has launched a formal investigation into Robinhood regarding its claims of offering the lowest-cost cryptocurrency trading services.

Authorities are examining Robinhood’s payment-for-order-flow (PFOF) revenue model, where trades are routed through third-party market makers.

Attorney General Uthmeier's inquiry centers on potential violations of the Florida Deceptive and Unfair Trade Practices Act. The investigation questions the validity of Robinhood's marketing claims concerning its competitive pricing model for digital asset transactions.

The investigation includes a subpoena served to Robinhood, requesting detailed records. This action stems from concerns that the platform's advertised claims may not accurately reflect the actual costs users incur when trading cryptocurrencies.

The Attorney General specifically highlighted Robinhood's revenue model, which relies on payment for order flow agreements with third-party market makers and exchanges to execute transactions. This arrangement raises concerns about potential increased costs for customers, as third-party processors might offer less favorable prices to maintain profitability and compensate Robinhood for routing trading orders.

Robinhood promotes on its site that traders can buy and sell cryptocurrencies at the lowest average prices in the U.S. market. Florida authorities, however, suspect these representations may be misleading given the platform's business model and fee structure for cryptocurrency transactions.

Robinhood's General Counsel, Lucas Moskowitz, has responded in defense, asserting that the company maintains best-in-industry disclosure practices. He stated that Robinhood provides transparent pricing information during the trade process.

Moskowitz emphasized that customers are clearly informed of spreads, fees, and revenue earned by Robinhood on each transaction, and he maintains that the platform offers genuinely competitive prices.

Robinhood previously faced regulatory action, agreeing to pay a $65 million fine in December 2020 to settle SEC charges related to order execution claims.

Despite the investigation announcement, Robinhood's stock price rose by 4.4% on Thursday, closing at $98.70. This increase is attributed to the overall positive trend in the cryptocurrency market and continued investor confidence. Robinhood is required to respond to the subpoena and provide the requested documentation to the Florida investigation team by the end of July.