Robinhood shares fell more than 5% after two former employees were charged with fraudulent cryptocurrency trading. Prosecutors allege each earned over $50,000 by using confidential information about token launches.
Hefu Chai, 36, and Huaisong Xiang, 30, were charged by the Justice Department on Tuesday, Forbes reported. Xiang’s attorney told the publication that Xiang denied the charges.
Prosecutors Allege Trades Used Private Listing Information
The allegations concern transactions based on information the employees learned before token launches. Prosecutors say Chai and Xiang used that knowledge to trade perpetual futures.
According to prosecutors, their trades generated profits on memecoins and the decentralized exchange Hyperliquid. The report describes charges against former employees, rather than criminal convictions in their cases.
At Robinhood, both were designated as Coin Aware Individuals. That designation restricted their ability to trade around new cryptocurrency listings and delistings.
The restriction covered trading on Robinhood and other platforms. They were barred from trading before, and during the 24 hours after, Robinhood publicly announced a new listing or delisting on Robinhood Crypto.
Robinhood Says It Reported The Matter
Robinhood confirmed to Forbes that it investigated the matter and reported it to regulators. In a statement to Bloomberg, the company said it had immediately alerted law enforcement and regulators.
“Robinhood takes market integrity seriously and has zero tolerance for insider trading,” the company said.
The company said its insider-trading policies and procedures cover new crypto listings. It also pledged continued cooperation with the investigations.
“We have robust insider-trading policies and procedures in place, including for new crypto listings,” Robinhood said.
Xiang’s denial accompanied those allegations. The company’s statement described its response to the matter, while prosecutors set out their claims about the employees’ trading.
Shares Fell To A Two-Week Low
Robinhood’s stock fell over 5.3% to $104.59 shortly before 2:30 p.m. EDT on Wednesday. Forbes described that price as a two-week low after an eight-month high in early September.
At the time of the report, shares had fallen 6.7% since the start of the year. The stock had traded around the $115 mark at the year’s opening.
Forbes reported that shares had risen about 177% since Robinhood went public in 2021. That period included over three years of stagnation below the $25 mark.
Earlier Cases Ended In Crypto Trading Convictions
The report placed the charges alongside earlier cryptocurrency trading cases. Former Coinbase product manager Ishan Wahi received two years in prison in 2023 for insider trading generating about $1.5 million.
Gotbit founder Aleksei Andriunin received eight months after pleading guilty to federal wire fraud and market manipulation charges. Those earlier convictions do not establish guilt in the Robinhood employees’ cases.
Related coverage examines exchange security failures, blockchain compliance and cryptocurrency and stock markets. Robinhood said it would continue cooperating with law enforcement and regulators.
