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Investing.com -- Robinhood Markets (NASDAQ:HOOD) is under investigation by Florida authorities over allegations that its cryptocurrency operations used deceptive practices to mislead consumers about trading costs.
Florida Attorney General James Uthmeier launched the probe into Robinhood Crypto, LLC on Thursday, issuing a subpoena for internal documents. The investigation centers on whether the company violated Florida’s Deceptive and Unfair Practices Act by falsely promoting its platform as the least expensive way to purchase cryptocurrency.
"Crypto is a vital component of Florida’s financial future, and President Trump’s efforts to advance the crypto market will make America stronger and wealthier. When consumers buy and sell crypto assets, they deserve transparency in their transactions," said Uthmeier. "Robinhood has long claimed to be the best bargain, but we believe those representations were deceptive."
Robinhood, which offers both cryptocurrency and stock trading services, generates revenue through payment for order flow (PFOF) rather than charging direct commissions. This practice involves routing customer trades to third-party firms that pay Robinhood for the opportunity to take the opposite side of customer trades.
The company attracts customers by claiming to offer the "lowest cost on average" for cryptocurrency trading and promising users will get "the most crypto for your money." However, Florida authorities believe trading on Robinhood may actually be more expensive than competing platforms due to its PFOF structure.
The attorney general’s office suggests that third parties paying Robinhood for order flow might charge less favorable prices to Robinhood customers to maintain profitability.
In a statement made to Investing.com, Lucas Moskowitz, Robinhood’s General Counsel said, “Our disclosures are best-in-class — 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.”
The subpoena seeks extensive documentation, including organizational charts, marketing materials, information about fee structures, and communications with Florida users. It also requests details about Robinhood’s agreements with market makers, competitive pricing analyses, and records of all trades by Florida users in 2024.
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