Previously, the Department of Financial Protection and Innovation ordered BlockFi and Voyager to cease offering their services within the state.
The California Department of Financial Protection and Innovation (DFPI) continues to prosecute crypto interest account providers who do not conform with local law. After directing BlockFi and Voyager to cease their state-based operations, the DFPI issued a cease and desist order to crypto loan company Celsius.
The judgement just stipulates that the crypto lending platform, which is undergoing the bankruptcy process, must cease all of its operations regarding the selling and marketing of securities in California.
The ruling was released on August 8 and asserts that Celsius Network and its CEO, Alex Mashinsky, made serious misrepresentations and omissions in the marketing of crypto interest accounts, specifically by understating the risks associated with depositing digital assets.
According to the Department, the unmentioned risks include the possibility that third-party custody services could lose access to digital assets; the risk that lenders would be unable to return Celsius’ collateral on time; and the possibility that, in the event of a sudden withdrawal request, Celsius would not have sufficient assets to meet customer withdrawal demands.
Additionally, the platform is accused of failing to qualify the deposited digital assets as securities in accordance with California law, Corporations Code Section 25110. A corporation must receive a licence from the DFPI to sell certain types of securities in the state.
The DFPI issued two cease-and-desist orders to BlockFi and Voyager, respectively, in July 2022. On July 6, Voyager, a cryptocurrency exchange connected with the failing hedge firm Three Arrows Capital (3AC), filed for Chapter 11 bankruptcy.
Celsius halted rewards and withdrawals for all customers on June 13, and has since halted margin calls, liquidations, and loan issuance. During the first bankruptcy hearing, lawyers for the platform asserted that Celsius is free to “use, sell, pledge, and rehypothecate those currencies” because users transferred ownership of their coins to the company in accordance with its terms of service (ToS).
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.