Robinhood faces research in Florida for deceptive advertising on crypto trade

The authorities suspect that the platform is not as cheap as promises to trade cryptocurrencies, and that makes deceptive statements to attract more customers.

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• Florida’s attorney general investigates if Robinhood He cheated the public about his real operating costs.
  
• The order flow income model (PFOF) It is in the center of the accusations.
  
• Robinhood It has until the end of the month to respond to the official requirement.

Florida has opened a formal investigation against Robinhood Crypto for allegedly deceiving users regarding the real cost of their transactions on the platform.

The accusation presented by the authorities raises doubts about one of the most controversial business models in the Fintech sector: the payment by orders flow, known as PFOF for its acronym in English.

The State Attorney General’s Office issued a statement yesterday, indicating that Robinhood He could have deceptive his platform as “The most economical way” of merchant cryptocurrencies. According to the authorities, there is evidence that users, on average, pay more in this service than on other competition platforms.

In this regard James Uthmeier, an entity official, said: “When consumers buy and sell cryptoactive, they deserve transparency in their transactions … Robinhood has long said to be the best economic option, but we believe that those statements were misleading. ”

The model PFOF Under investigation

In the center of this investigation is the order of income for orders (PFOF), which allows a Robinhood Offer without commissions. Instead of charging users directly, the company generates income by enruting the orders of its customers to certain market creators (Market Makers), who pay a commission in return.

Critics of the model argue that this system generates a conflict of interest, since Robinhood You could prioritize your benefit over the most favorable price for the user. This same scheme has also been criticized also in the stock market.

In 2020, Robinhood paid USD $ 65 million to United States Stock Exchange and Securities Commission (SEC) to resolve a compliance action related to deceptive statements about the quality of execution of its operations. Although the company did not admit or denied the charges, the case marked a significant precedent. Under the presidency of Gary Gensler, the agency considered prohibiting the PFOF, although he finally did not.

The model is currently prohibited in the United Kingdom and will enter into force its prohibition in the European Union starting next year.

Defense of Robinhood

From the company, the comments of his defense team soon arrived. In a statement sent by email, Lucas Moskowitz, general advisor of Robinhood Markets, affirmed:

“Our disseminations are first class. We present to customers clear information about prices throughout the cycle of a transaction, which includes the margin or the associated rates, and the income that Robinhood receives. We are proud to be a place where customers can trade cryptocurrencies at the lowest cost, on average.”

Vlad Tenev, CEO of the company, has also publicly defended the model PFOF In the past. In an interview for CNBC made in 2023, he said that this modality “It’s here to stay.”

Requirements and next steps

The official citation issued by the Prosecutor’s Office requests a wide range of documents to Robinhood. Among them are records on how it determines prices, refund policies for transaction or agreements with market creators. It also requires comparative with other crypto platforms and details about the possible sale or access of third parties to user operations data.

Robinhood It has until the end of this month to formally respond to the request for information from the Florida Prosecutor’s Office.

The result of this research could have significant repercussions for the company and for the crypto industry in general, especially in a context where state and federal regulation has intensified.

Let’s keep in mind that Robinhood He is also facing problems on other fronts, since his plans to market tokenized actions of important technology companies They have generated concerns among regulators both in the US and in Europe.

Article written by a content editor. Edited by Angel Di Matteo / Diariobitcoin

Original image of Diariobitcoin, created with artificial intelligence, freely used, licensed under public domain

WARNING: Diariobitcoin offers informative and educational content on various topics, including cryptocurrencies, AI, technology and regulations. We do not provide financial advice. Cryptactive investments are high risk and may not be adequate for all. Investigate, consult an expert and verify the applicable legislation before investing. I could lose all its capital.

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