Florida investigates Robinhood: misleading crypto advertising in its sights!

Florida investigates Robinhood: misleading crypto advertising in its sights!

The Florida Attorney General's Office has opened an investigation into the Robinhood trading platform. The accusation is that Robinhood falsely advertises its crypto services as the most cost-effective on the market. Attorney General James Uthmeier has stated that Robinhood is violating the Unfair and Deceptive Business Practices Act. An investigative warrant was issued to request several documents from Robinhood to investigate the allegations.

Uthmeier particularly emphasizes the importance of transparency for consumers who trade crypto assets. However, Robinhood denies the charge and claims that traders can buy and sell cryptocurrencies at the lowest cost in the US. However, that claim is now being questioned by the Attorney General's Office, which argues that Robinhood's business model, based on the practice of "Payment for Order Flow" (PFOF), actually makes the platform more expensive.

The role of payment for order flow

PFOF is a practice in which brokerage firms receive a fee for routing orders to specific market participants or exchanges. Robinhood CEO Vlad Tenev defended this practice in December 2023, despite concerns about possible conflicts of interest. However, Uthmeier cautioned that using PFOF could potentially cost consumers more.

In 2020, Robinhood faced similar allegations and agreed to a $65 million penalty with the Securities and Exchange Commission to settle those allegations without admitting any wrongdoing. So the company is under some pressure to provide evidence of its practices.

Reaction to the allegations and market reactions

Lucas Moskowitz, Robinhood's general counsel, has emphasized that the platform's disclosures are top-notch and its pricing is clearly laid out. Robinhood has until the end of July to respond to the subpoena. Despite the ongoing investigation, which could potentially have adverse consequences for the company, shares of Robinhood rose 4.4% on Thursday to close at $98.70. Over the past few months, shares have risen 30%, driven by Robinhood's strategic focus on blockchain technology and tokenization.

The developments surrounding the investigation show how complex the world of cryptocurrencies and the associated trading platforms is. Consumers expect transparency, and it remains to be seen how the situation will evolve for Robinhood.

For more details about the investigation, please visit IT Boltwise and Cointelegraph.