Florida Attorney General Investigates Robinhood’s Crypto Fee Practices
Accusations versus Defenses Emerge in Florida Deceptive Practices Probe
Florida’s Attorney General, James Uthman, has initiated a formal investigation into trading platform Robinhood over its marketing claims regarding the pricing of its cryptocurrency services.
“Crypto is a vital component of Florida’s financial future… Consumers buy and sell crypto assets, they deserve transparency in their transactions.”
In a separate statement, Robinhood General Counsel Lucas Moskowitz countered that the platform maintains transparency, asserting that customers achieve the lowest average trading costs in the U.S.
Issuing a subpoena for requested documents and alleging violations of Florida’s Deceptive and Unfair Practices Act, Uthman formally opened the investigation.
“Robinhood has long claimed to be the best bargain, but we believe those representations were deceptive.”
Robinhood highlights on its website that traders “can buy and sell crypto at the lowest costs on average in the US.” However, AG Uthman questions this assertion, suggesting that Robinhood’s revenue model through payment for order flow (PFOF) inflates effective costs.
Order Flow Revenue, Regulatory Concerns
Uthman specifically pointed to PFOF as the likely source of higher costs:
Brokerage firms using PFOF receive compensation for directing orders and executing trades to specific market makers or exchanges, typically earning fractions of a penny per share.
“third parties that pay Robinhood for order flow might have to charge less favorable prices” to ensure profitability, according to Uthman.
Robinhood previously defended PFOF in a 2023 CNBC interview, and was fined $65 million in 2020 without admitting guilt to claims it misled customers about order execution prices relative to other brokers.
Transparency from Robinhood’s Viewpoint
Responding to the allegations, Robinhood maintained its operational transparency:
“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,” said General Counsel Lucas Moskowitz.
Robinhood has until the end of July to formally respond to the subpoena.
Market Reaction
Robinhood’s investors appeared relatively unperturbed by the news:
- The company’s stock closed Thursday up 4.4% to $98.70, after staging a 30% rally over the previous month attributed partly to its embrace of blockchain technology.
- However, the stock retreated slightly in after-hours trading to $97.23.
- This follows a $65 million SEC settlement in 2020, addressed in part to Robinhood’s past claim of lowest trading costs.
Traders don’t appear overly concerned about Florida’s probe into Robinhood’s operations, according to market data aggregators.
The investigation remains ongoing.
