State regulators go after crypto lender Celsius
Cryptocurrency lending platform Celsius is now on the radar of the securities regulators for Alabama, Texas, and New Jersey
Celsius, a digital assets exchange platform, received a cease-and-desist order from the New Jersey Bureau of Securities last Friday. The order required that the platform stop offering its interest-bearing crypto products to customers in the state by October. On the same day, the Texas State Securities Board scheduled Celsius for a February 14, 2022 hearing, where it shall be determined whether the firm gets slapped with a cease-and-desist order on a similar matter.
The regulatory action of Texas and New Jersey added to Alabama’s Thursday show-cause order requiring Celsius to explain why it did not consider its yield product security. The New Jersey state government confirmed on Friday via a statement that the NJBoS decision was based on the fact that the yield products were offered illegally, given that they had not been registered as securities.
The statement also added that the volatility of the crypto market exposed investors to higher levels of risk, more so given that currently, there is no well-structured regulatory oversight over crypto. Further, it also explained that the unregistered securities held significant risk because they are not obligated to subscribe to disclosure requirements.
“Investors in unregistered offerings, like the Celsius Earn Rewards accounts addressed by the Bureau’s Order, may not receive any information about the specific investment strategies used by the issuer to generate investment returns….”
On its part, the Texas State Securities Board categorically stated that Celsius was not registered as a ‘Money Service Business’ in the state, adding that the firm was not licensed by the US SEC; hence their activities violated Texas law. The Board also averred that the firm’s lack of disclosure of critical information for investors’ decision-making was part of the reasoning behind the order.
The latest action by the state of New Jersey follows the July decision that saw the state bar BlockFi from offering its Bearing Interest Accounts (BIAs). The firm was, at the time, facing regulatory pressure from other states that were confronting it over the same matter including Alabama, Texas, Vermont, and Kentucky.
Scrutiny on lending products has been heightened even as the SEC seeks to get a hold of the crypto situation. The regulators perceive crypto yield products to be securities since they work pretty much like unsecured bonds. They are thus required to be registered as securities before being put to use. It is worth noting that these crypto-yield products guarantee significantly higher than the traditional interest rates offered by banks. Celsius, for instance, advertises as high as 17% yield earnings depending on the asset.
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Sam Grant, Khareem Sudlow