Florida investigates Robinhood Crypto for claiming it offers the lowest cost crypto trading without clear proof.
Robinhood uses a payment for order flow model that could lead users to pay more for each crypto trade.
The company must submit documents by July to support its advertising claims about low-cost crypto trading.
Florida Attorney General James Uthmeier has launched a formal investigation into Robinhood Crypto LLC. The probe targets claims made by the company that it offers the lowest-cost method for cryptocurrency trading. The state says Robinhood has failed to provide evidence supporting this statement.
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The investigation accuses Robinhood of possibly misleading customers. Authorities argue the company’s statements may violate Florida’s Deceptive and Unfair Trade Practices Act. The state wants to know whether users are truly getting the low-cost trading experience they were promised.
Scrutiny of Payment for Order Flow
At the center of the investigation is Robinhood’s payment for order flow (PFOF) model. Instead of directly executing trades, Robinhood sends orders to third-party firms. These firms pay Robinhood small fees to process each trade. However, this model can raise trading costs for users.
The Florida Attorney General’s office claims this setup could harm consumers. Since third-party firms aim to profit, they may offer prices that are less favorable to users. The investigation will examine if this structure affects trade fairness and transparency.
Florida has issued a subpoena demanding internal documents from Robinhood. These records must support the company’s cost-related advertising claims. Robinhood must respond to the subpoena by the end of July.
Ongoing Regulatory Pressure
This is not the first time Robinhood’s practices have faced legal action. In December 2020, the company agreed to pay a $45 million fine to the U.S. Securities and Exchange Commission. That case involved misleading statements about trade execution quality.
The SEC had found that Robinhood falsely claimed users received better trade prices than with other brokers. The agency said these claims were inaccurate. The Florida case now raises similar concerns within the crypto segment.
Regulators at the federal level have also focused on PFOF practices. The SEC introduced new rules requiring brokers to disclose trade execution details. These disclosures aim to protect retail investors and ensure pricing transparency.
Stock Performance Shows Mixed Reaction
Despite the investigation, Robinhood’s stock rose during Thursday’s trading session. It climbed 4.4% to close at $98.70. This increase came during a strong day for the crypto market overall.
However, in after-hours trading, the stock pulled back. It fell to $97.23, a 1.49% decline. Robinhood’s share price remains close to it's all-time high of $100.88.