Florida Attorney General James Uthmeier has recently launched an investigation into Robinhood Crypto, alleging that the platform may have misled customers by promoting itself as the cheapest option for buying digital assets. The attorney general’s office issued a subpoena to Robinhood’s crypto unit, requesting internal documents, marketing materials, and pricing data to determine if the company violated Florida’s Deceptive and Unfair Trade Practices Act.
Uthmeier stated, “When consumers engage in transactions involving crypto assets, they deserve transparency. Robinhood has claimed to offer the best prices, but we believe these claims were deceptive.” The investigation aims to uncover whether Robinhood’s zero-commission model masks revenue generated from trade routing, potentially resulting in hidden costs for users.
Robinhood’s payment for order flow (PFOF) model allows users to trade cryptocurrencies and stocks without direct commissions. However, the company earns revenue by routing trades to third-party market makers who pay for the opportunity to execute these trades. Critics argue that PFOF can obscure true costs for customers, leading to potentially unfavorable prices. While legal and disclosed in filings, this practice has attracted regulatory scrutiny, particularly in volatile markets.
In addition to the Florida investigation, EU regulators have also launched inquiries into Robinhood’s blockchain-based “Stock Tokens.” These controversial investment products have come under scrutiny, especially after OpenAI publicly disavowed any association with them following their launch on June 30.
The attorney general’s office accused Robinhood of falsely promoting its platform as the cheapest way to purchase crypto assets. The subpoena, requiring a response by July 31, aims to determine if PFOF compromises transparency or results in hidden fees for users. In response, Robinhood’s General Counsel Lucas Moskowitz emphasized that the company clearly discloses pricing during each trade, showcasing any applied spread or fees. He asserted, “We are committed to providing a platform where customers can trade crypto at the lowest average cost.”
While PFOF accounted for 15%-20% of Robinhood’s revenue in 2023, the company defends this model as a means to maintain accessibility in trading. However, regulators and consumer advocates remain cautious of potential undisclosed costs associated with the practice. As the investigation unfolds, the cryptocurrency community eagerly awaits the outcome of the probe into Robinhood’s marketing practices and fee transparency.
This article was originally published on Cryptonews and has been adapted for a WordPress platform.