• Robinhood has received a Wells Notice from the U.S. SEC.
• In the Wells Notice, the SEC staff alleged Robinhood violated Sections 15(a) and 17A of the Securities Exchange Act of 1934.
• Robinhood Markets Chief Legal, Compliance, and Corporate Affairs Officer Dan Gallagher said that he is “disappointed” with the Wells Notice. “We firmly believe that the assets listed on our platform are not securities,” he said.

Stock brokerage app Robinhood is feeling the heat from the U.S. Securities and Exchange Commission (SEC) today. The California-based company revealed in a blog post over the weekend that it received a Wells Notice from the SEC.

In the Wells Notice, staff at the SEC filed an enforcement action against Robinhood, alleging the company violated Sections 15(a) and 17A of the Securities Exchange Act of 1934. The former section requires broker-dealers to register with the SEC and become a member of a self-regulatory organization (SRO), such as FINRA. The section aims to ensure that broker-dealers adhere to standards and practices to protect investors. The latter, 17A, establishes the framework for the National Securities Clearing Corporation (NSCC). This section also requires transfer agents to register with the SEC and sets standards to ensure securities transactions are efficiently processed.

According to Robinhood’s 8-K filing, “The potential action may involve a civil injunctive action, public administrative proceeding, and/or a cease-and-desist proceeding and may seek remedies that include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest, civil money penalties, and censure, revocation, and limitations on activities.”

Robinhood has made it clear that it is making efforts to comply with the SEC to resolve the issue. The company originally launched Robinhood Crypto, its crypto trading arm, in early 2018. Robinhood Crypto currently allows customers in 48 states and Washington D.C. to buy, sell, store, and in many cases transfer up to 18 cryptocurrencies.

Robinhood Markets Chief Legal, Compliance, and Corporate Affairs Officer Dan Gallagher said that the company uses a “rigorous review process designed to ensure that it does not list digital asset securities.” The company said it has always been careful not to list certain tokens that the SEC has deemed securities in public actions against other platforms. Robinhood has also steered clear of products, including lending and staking, that may be considered securities.

“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,” said Gallagher. “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.”

Robinhood has not disclosed any specific actions it plans to take to respond to the SEC’s notice. The company can take action to respond to the allegations before the SEC makes a move to sue or settle with Robinhood to resolve the issue. The company said that the development will impact neither the services it provides nor its end customers’ accounts.

Photo by Divakar Meganathan

• Upstart launched a new capability, Recognized Customer Personalization (RCP), that allows banks to present customized loan offers to their clients searching for a loan on Upstart.com.
• Banks can tailor the offer to each prospective borrower based on their risk tolerance, return target, preferred loan size and terms, and geographic focus.
• Currently, more than 20 lenders within Upstart’s network are already using the new tool.

Lending marketplace Upstart recently unveiled a feature it calls Recognized Customer Personalization (RCP). This new personalization tool enables banks using Upstart’s Referral Network to present a customized loan offer to their customers who use Upstart.com to look for a loan.

The new capability offers lenders on the Upstart Referral Network insight into which of their customers are in the market for a loan and enables banks to send an immediate and automated branded credit offer to the customer. Banks can tailor the offer to each prospective borrower based on their risk tolerance, return target, preferred loan size and terms, and geographic focus. RCP also allows lenders to use their own, in-house underwriting model, or leverage Upstart’s AI-enabled credit decisioning tool.

“In the current economic environment, lenders are laser focused on retaining their customers and increasing the lifetime value of those relationships,” said Michael Lock, SVP of Lending Partnerships, Upstart. “RCP enables them to reach their existing customers in a new way, provide more value, and build loyalty.”

RCP is currently available for personal loans and Upstart plans to expand the program to auto loans and home equity lines of credit in the future. Currently, more than 20 lenders within Upstart’s network are already using RCP.

Charles Eads, Chief Lending Officer of one such lender, Abound Credit Union, noted RCP’s potential to help the credit union serve members outside of its typical geographic boundary. “RCP will enable us to retain and better serve our existing members,” said Eads. “This innovative program will allow us to continue to meet the financial needs of our members in the communities we serve, as well as those members who have moved outside of the area.”

California-based Upstart was founded in 2012 to leverage AI and machine learning to price credit and automate the borrowing process. The company closed its IPO in 2020 and is currently traded on the NASDAQ under the ticker UPST with a market capitalization of $2.02 billion.

Photo by Monica Silvestre