The platform being issued a Wells Notice by the SEC is surprising given the company’s conservative approach to digital assets listings, the report said.

Robinhood (HOOD) being issued a Wells Notice by the Securities and Exchange Commission (SEC) is surprising given the company’s very conservative approach to digital asset listings, KBW said in a research report on Monday.

KBW notes that Robinhood only offers fifteen cryptocurrencies on its U.S. platform, while some of its peers offer more than two hundred digital assets.

“We expect no change to HOOD’s current U.S. crypto operations or asset listings – and expect the SEC to bring forward a suit within the coming months,” analysts led by Kyle Voigt wrote.

“Our preliminary view is that HOOD would likely fight the SEC in court and has a higher likelihood to prevail than most U.S. competitors (if put in similar situations) given HOOD’s stricter listings standards,” the authors wrote.

Crypto trading makes up 12% of Robinhood’s revenue, the report said, and KBW assumes that the SEC will likely go after a subset of digital assets on the platform.

“The worst case scenario from a revenue-at-risk perspective is if the SEC chooses to move forward with categorizing ether (ETH) as a security – as this likely makes up ~25% of HOOD’s crypto assets/trading,” the report added.

The broker has a market perform on the stock with a $20 price target. The shares were trading 1.3% higher in early trading on Tuesday at around $18.

KBW said that Robinhood shareholders won’t have full clarity on the outcome of a potential legal case until late 2025 at the earliest, citing the regulator’s ongoing case against crypto exchange Coinbase (COIN).

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The settlement follows an investigation into Robinhood platform outages in March 2020 spearheaded by a regulators in seven states including California and Alabama.

Retail trading platform Robinhood is set to pay up to $10.2 million in penalties for operational and technical failures that harmed investors, according to a Thursday announcement from a California regulator.

The California Department of Financial Protection and Innovation (DFPI) has joined the multi-state settlement, which followed a North American Securities Administrators Association (NASAA) investigation into Robinhood platform outages in March 2020.

“In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping,” the DFPI said.

The investigation was spearheaded by securities regulators in California, Alabama, Colorado, Delaware, New Jersey, South Dakota and Texas.

This isn’t Robinhood’s first multi-million dollar penalty. In 2021, Robinhood’s crypto arm said it was set to pay a $30 million settlement to the New York State Department of Financial Services (NYDFS) over violations of regulatory requirements. This came after a $65 million payment to the U.S. Securities and Exchange Commission in 2020 to settle allegations the platform misled investors. The platform was also slapped with a $70 million fine by the Financial Industry Regulatory Authority (FINRA) for failing to protect customers.

“Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies,” NASAA President Andrew Hartnett said in a press statement.

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