The United States Securities and Exchange Commission (SEC) has issued a Wells notice to the popular trading platform Robinhood.

Following the news of the Wells notice, Robinhood’s share price fell 2.5% in pre-market trading to $17.95 as of 12:50 pm UTC. The Wells notice was issued on May 4, according to a court filing.

The Wells notice is a letter sent from the securities regulator that concludes its investigation of the respondent, in this case, Robinhood’s U.S.-based crypto business.

According to the filing, the SEC has been investigating Robinhood’s cryptocurrency listings and crypto custodian operations and made the “preliminary determination” to recommend that the SEC file an enforcement action related to alleged securities violations.

The news of the investigation comes despite Robinhood’s attempts to register with the U.S. securities watchdog, according to Dan Gallagher, the chief legal, compliance and corporate affairs officer at Robinhood Markets.

Gallagher wrote in a May 6 blog post:

“After years of good faith attempts to work with the SEC for regulatory clarity including our well-known attempt to ‘come in and register,’ we are disappointed that the agency has decided to issue a Wells Notice related to our U.S. crypto business.”

Gallagher added that Robinhood doesn’t see any of its listed assets as securities:

“We firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law.”

Crypto regulatory landscape is akin to equities regulations in 1932

Robinhood has been trying to avoid securities violations. As part of its efforts, it previously chose not to list certain tokens or provide crypto lending and staking services that the SEC has previously alleged to be securities offerings during lawsuits against other platforms.

However, Robinhood’s chief compliance officer noted that the lack of federal regulatory clarity created an uneven playing field for market participants, making regulatory compliance difficult and hindering mainstream crypto adoption.

In a June 6 court testimony, Gallagher, who previously served as an SEC commissioner from 2011 to 2015, said:

“Unfortunately, Robinhood and other digital asset market participants in the U.S. face a patchwork of state regulatory frameworks, not all of which are consistent, as well as a lack of regulatory clarity at the federal level. In many ways, the regulatory landscape for digital assets is like it was for the equities markets in 1932.”

The SEC and the Commodity Futures Trading Commission have yet to issue clear guidelines on what they deem as securities and commodities in relation to digital assets.

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