Robinhood Under Fire for Crypto Cost Promises

Robinhood uses the very controversial payment-for-order-flow practices. Meanwhile, in New York, LIBRA meme coin creator Hayden Davis is seeking dismissal of a class-action lawsuit, and argued lack of jurisdiction. Separately, the Midas Project filed a complaint with the IRS accusing OpenAI of tax violations and conflicts of interest that could threaten its nonprofit status. Florida Targets Robinhood Over Fees Florida Attorney General James Uthmeier launched an investigation into Robinhood, alleging the popular trading platform misled consumers by promoting its crypto services as the cheapest option on the market. The investigation is based on claims of deceptive marketing practices, and accuses Robinhood of violating Florida’s Deceptive and Unfair Practices Act. A subpoena has been issued for various company documents. Uthmeier pointed out that crypto is a “vital component of Florida’s financial future,” and that consumers deserve full transparency when buying and selling digital assets. At the heart of the dispute is Robinhood’s use of payment for order flow (PFOF), which is a controversial business model where brokers are compensated by third parties for routing trades through them. Critics, including the Florida attorney general, argue that this practice may lead to worse execution prices for customers, even if it appears commission-free on the surface. According to Uthmeier, “third parties that pay Robinhood for order flow might have to charge less favorable prices” to stay profitable. This isn’t the first time Robinhood faced scrutiny over its pricing claims. In 2020, it paid $65 million to settle SEC allegations that it misled customers about how their orders were executed, though it admitted no wrongdoing. Robinhood’s general counsel, Lucas Moskowitz , defended the company’s practices by explaining that its disclosures are “best-in-class” and that customers are given clear information about pricing, spreads, and revenue throughout the trade process. “We are proud to be a place where customers can trade crypto at the lowest cost on average,” he said. Robinhood has until the end of July to respond to the state’s subpoena. Robinhood’s stock price over the past 24 hours (Source: Google Finance ) Despite the legal scrutiny, Robinhood’s stock rose 4.4% on Thursday, closing at $98.70. This positive movement was buoyed by the broader crypto market rally. That puts the stock just below its all-time high of $100.88. In after-hours trading, the stock pulled back slightly to $97.23, down 1.49%. Over the past month, Robinhood shares rallied by 30%, driven by growing investor optimism around the firm’s strategic expansion into blockchain technology and asset tokenization. LIBRA Creator Fights NY Lawsuit In other crypto-related legal news, Hayden Davis, the creator of the LIBRA meme coin and co-founder of Kelsier Ventures, requested a New York federal court to dismiss a class-action lawsuit against him. He argues that the court lacks jurisdiction. In a motion that was filed on Wednesday, Davis stated he had no meaningful connection to New York, and claimed he does not reside there, has never conducted business in the state, and did not specifically target New York residents when promoting LIBRA. The token gained international attention after Argentine President Javier Milei publicly praised it, but it collapsed by 94% in February, triggering widespread investor outrage. The class-action lawsuit was brought by a group of LIBRA investors led by Omar Hurlock, and it accuses Davis and his brothers, Gideon and Thomas Davis, of misleading the public by suggesting the token would benefit Argentina’s economy while allegedly siphoning over $100 million through manipulated liquidity pools. Some of the other defendants include KIP Protocol and its CEO Julian Peh, along with crypto platform Meteora and co-founder Benjamin Chow. Davis argued that continuing the case in New York will violate constitutional due process, as the suit does not sufficiently establish personal jurisdiction over him. He explained that any marketing or communication regarding LIBRA was conducted on a global scale, not aimed specifically at New York or its residents. Davis also argued that the LIBRA project originated in Argentina and that its associated website is passive in nature, and primarily designed to gather applications from Argentinian businesses, rather than facilitating direct commercial activity across state lines. The court filing pointed out that, while the lawsuit asserts that Meteora has business operations in New York, it fails to make similar claims about Davis. He also disputed allegations that his public comments, including a promise to repurchase certain LIBRA tokens, were made with any intentional connection to New York. Earlier in May, the plaintiffs succeeded in getting a temporary order directing stablecoin issuer Circle to freeze more than $57 million in USDC allegedly connected to the LIBRA project. The token’s dramatic rise and fall even led to political turmoil in Argentina, where opposition parties accused President Milei of involvement and called for his impeachment. However, Milei was cleared of any wrongdoing by Argentina’s anti-corruption watchdog, and no official action was taken against him. President Milei’s deleted post (Source: Kobeissi Letter ) Davis requested that the case be dismissed without prejudice. This could allow the plaintiffs to potentially file the lawsuit in another jurisdiction. Watchdog Targets OpenAI Over Tax Violations Legal drama is not only reserved for the crypto industry. The Midas Project, a nonprofit watchdog focused on artificial intelligence, recently filed a complaint with the US Internal Revenue Service (IRS), accusing OpenAI of potential tax law violations that could jeopardize its nonprofit status. The complaint alleges serious conflicts of interest in OpenAI’s board, including CEO Sam Altman’s dual role overseeing both the nonprofit and its for-profit operations, The Midas Project claims this creates a situation where Altman could personally benefit at the expense of the public interest. The watchdog also claims OpenAI has abandoned key safeguards, misused charitable funds, and structured its board in a way that violates federal nonprofit regulations. It also pointed out that board members like Bret Taylor, Adam D’Angelo, and Adebayo Ogunlesi have financial interests that could compromise the organization’s mission. The group argues that as OpenAI moves toward more advanced AI systems, weakening nonprofit protections could endanger the public good. OpenAI was founded in 2015 as a nonprofit to ensure the safe development of artificial general intelligence, but reportedly explored a for-profit conversion in late 2023.

Source: Coinpaper