In the latest round of intrusive actions against DeFi companies, a number of US States regulators target Celsius, requiring them to stop offering certain products by November 1, as well as demanding more clarity on some of the platforms services.
State regulators in Texas, New Jersey and Alabama are all simultaneously going after Celsius, with their demands to cease offering certain services within 6 weeks being met with incredulity by the company. Celsius has issued a statement expressing their disappointment at the regulators, and categorically stating that it complies with all relevant laws. Texas and NJ added to the show cause order, issued by the Alabama state regulator last week which required Celsius to explain why it did not consider its yield product a security.
The New Jersey government confirmed that the NJBoS decision to investigate was due to the belief that the Yield products were in fact securities and therefore had been offered illegally.
Regulators Target Celsius: Statements from the Securities Boards
The statement says “The Bureau’s Summary Cease and Desist Order was issued against Celsius Network LLC (Celsius), which has been funding its cryptocurrency lending operations and proprietary trading at least in part through the sale of unregistered securities in violation of the New Jersey Securities Law. Those unlawful sales have raised at least $14 billion for Celsius.”
This is the latest DeFi investigation by both state and federal regulators, which have already gone after BlockFi earlier in the year, alleging that it offers unregistered securities. In the last couple of weeks, the SEC have gone after market leading exchange Coinbase over their upcoming LEND program. In this case, the company opined that it had not received information as to specifically what the regulator was looking for, only that it had received a formal notice saying that they were intending to sue.
In fact, the SEC have made a number of deeply unpopular moves against crypto recently, with chairman Gary Gensler announcing that he wants to see more regulation of digital assets.
Celsius is one of the biggest names in the DeFi space, with Assets under management valued at over $24B USD, and which offers users the ability to earn much higher interest on their crypto investments than any traditional bank could offer, especially with the savings interest rates at such prolonged historic lows.
“Financial companies operating in the cryptocurrency marketplace are on notice…If you sell securities in New Jersey, you need to comply with New Jersey’s investor-protection laws. Companies dealing in cryptocurrencies are not immune from oversight.”Acting NJ Attorney General Bruck.
The statement by the NJ Bureau of Securities cites that “Celsius solicits investors to invest in its Earn Rewards accounts by depositing certain eligible cryptocurrencies – including Bitcoin and Ethereum – into the investors’ accounts at Celsius. Celsius then pools these cryptocurrencies together to fund its various income generating activities, including lending operations and proprietary trading. In exchange for investing in the Earn Rewards product, investors are promised an attractive interest rate that is paid weekly in the same type of cryptocurrency as originally invested, or, subject to certain conditions, in Celsius’ native digital token CEL (which is not currently available for U.S.-based account holders).”
Furthermore, the as the regulators target Celsius over what they say is the company’s failure on it’s website “to disclose to investors that its Earn Rewards product is not currently registered with any federal or state securities regulator even though, as a security, it is subject to such requirements.”
The Celsius cease and desist order from the NJBoS now requires the platform to stop offering interest-bearing crypto products to customers in the state by the end of October, whilst the Texas State Securities Board scheduled a hearing for Valentines Day 2022 where they intend to decide whether to penalise the company with a cease and desist order of their own.
More to follow as the story unfolds.