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Robinhood's cryptocurrency trading platform has agreed to pay a $3.9 million penalty to resolve allegations brought by the state of California that the company restricted customer withdrawals from their accounts between 2018 and 2022, California Attorney General Rob Bonta announced Wednesday.

This civil settlement is the first public enforcement action by the California Department of Justice (DOJ) against a cryptocurrency company. The investigation focused on whether Robinhood Crypto LLC violated the California Commodities Law (CCL).

Robinhood $3.9M Deal : California’s First Major Crypto Enforcement

"Our investigation and settlement with Robinhood should send a strong message: Whether you're a brick-and-mortar store or a cryptocurrency company, you must adhere to California's consumer and investor protection laws," Bonta said in a statement.

Lucas Moskowitz, Robinhood's general counsel, said the company was "pleased to put this matter behind us." He added that the settlement fully addresses the Attorney General's concerns, and Robinhood looks forward to continuing its mission of making cryptocurrency more accessible to everyone.

Alleged Violations of Withdrawal Rights

According to the DOJ's findings, Robinhood violated the CCL by allowing customers to purchase cryptocurrencies, such as Bitcoin, without properly delivering the assets to them. Customers were also unable to withdraw their digital currencies and were required to sell them back to Robinhood in order to exit the platform, the investigation revealed.

The department further accused Robinhood of misleading customers by claiming it would connect them to multiple trading venues for the best price. At times, however, Robinhood arranged for third-party venues to hold customer assets, even while representing that it held all customer cryptocurrencies.

Settlement Terms: Improved Transparency and Customer Protections

As part of the $3.9 million settlement, Robinhood, while not admitting or denying any wrongdoing, must allow customers to withdraw their cryptocurrency assets to their personal wallets. The company is also required to ensure its written policies align with its trading and order handling practices.

Additionally, Robinhood must clearly disclose its role as custodian of customer assets and update its Customer Agreement to notify users of any potential delays in transaction settlement. Should any incident delay a transaction for more than a week, Robinhood is required to inform the attorney general's office.

Robinhood $3.9M Deal : Ongoing Legal Challenges and Business Moves

This $3.9 million deal marks the latest in a series of legal settlements for Robinhood. In July, the company received final approval for a $9 million settlement in Washington state to resolve claims that its referral program violated the Commercial Electronic Mail Act by sending unsolicited promotional texts to nonusers.