Robinhood Markets Inc. has received a Wells notice from the U.S. SEC, indicating a potential enforcement action over its crypto operations. The SEC’s staff has recommended pursuing an enforcement action against Robinhood Crypto for its cryptocurrency listings, custody practices, and platform operations, as per a regulatory filing submitted recently.

The consequences of this action could include an injunction, a cease-and-desist order, disgorgement, and other penalties or operational limitations, as outlined in the filing. Robinhood has been cooperating with the SEC’s investigation after receiving a subpoena earlier.

A Wells notice gives companies the opportunity to respond to the SEC’s allegations before formal enforcement actions are taken. However, it does not guarantee that action will be taken in the end.

Recently, Robinhood Crypto has faced increased regulatory scrutiny in the U.S. as authorities focus more on the cryptocurrency industry. Laura Brookover, a former CFTC enforcement official and current Consensys lawyer, criticized the SEC’s approach and questioned its priorities.

Following the announcement of the SEC’s subpoena, Robinhood’s stock fell by 5% shortly after markets opened at 9 a.m. EST.

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