Robinhood defies the SEC by forking over $200 million for a crypto exchange

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Robinhood plans to buy crypto exchange BitStamp to expand its crypto business internationally even as it faces increased scrutiny by regulators at home.

The financial services company said Thursday it would buy BitStamp for $200 million in cash to help it expand its crypto business worldwide. Founded in Slovenia in 2011, BitStamp has a major international presence with more than 50 active licenses to operate globally. Most of the company’s revenue comes from Europe.

“The acquisition of Bitstamp is a major step in growing our crypto business. Bitstamp’s highly trusted and long standing global exchange has shown resilience through market cycles,” said Johann Kerbrat, general manager of Robinhood Crypto, in a statement.

While Robinhood sets its sights abroad, trouble with regulators is brewing at home. Last month, the Securities and Exchange Commission sent the company a Wells Notice, notifying it that the regulator could sue after a “preliminary determination” that Robinhood had violated securities law. The Wells Notice doesn’t necessarily mean that the SEC will proceed with a lawsuit but it’s a step regulators take before determining whether to move forward to official enforcement proceedings. The company has a chance to explain to regulators why it shouldn’t bring an enforcement action within 30 days. The SEC weighs the response in making its final decision. Robinhood’s pending BitStamp acquisition will likely not be relevant to the SEC as BitStamp’s operations are mostly abroad.

“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’s compliance and corporate affairs officer Dan Gallagher said in a May statement.

In that statement, the company claimed it has been conservative with the types of tokens it listed on its platform. It said it has also shied away from offering products that the SEC has targeted, such as lending and “staking,” where crypto owners can earn rewards by putting up some of their crypto to help verify transactions on certain blockchains that use “proof of stake.” The SEC is suing the largest U.S.-based crypto exchange, Coinbase, because it alleges that the exchange offered unregistered securities through its staking rewards program.

With the BitStamp acquisition, Robinhood will introduce its first institutional business. It will also jump into staking and lending abroad, despite limiting itself in the U.S.

The SEC under chairman Gary Gensler has waged a yearslong campaign against crypto, with mixed results. Although Gensler has racked up some legal wins against crypto players, he faced a setback when a judge ruled in August that the SEC had unreasonably denied crypto asset manager Grayscale’s application to create a spot Bitcoin ETF. The SEC approved several spot Bitcoin ETFs in January and, in mere months, the financial vehicles have racked up billions of dollars in inflows.

Despite the warning from the SEC, Robinhood has pushed forward with crypto for good reason. Crypto transactions brought in $126 million in revenue in the first quarter, up from the $38 million in the same period last year, according to its quarterly earnings. Crypto was the second-biggest revenue driver for the company behind options trading in the first quarter. 

Robinhood’s stock was trading up 1.45% at $23 as of midday Thursday following the acquisition announcement.

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