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Vermont is the sixth state in the United States to investigate Celsius

The state financial regulator stated that Celsius breached state security regulations by offering customers accounts with high crypto interest rates and unethically investing client cash in illiquid products.

Tuesday, Vermont’s Department of Financial Regulation (DFR) issued a warning against problematic crypto loan company Celsius, reminding consumers that Celsius is not permitted to offer its services in Vermont.

According to the DFR, Celsius is “seriously insolvent” and lacks “assets and liquidity” to meet its obligations to its clients. The state authority accused the cryptocurrency lender of mismanaging consumer cash by investing them in risky and illiquid assets.

In addition to the normal hazards of investing in cryptocurrencies, Celsius interest account holders were subject to the credit risk that Celsius might not be able to return their tokens upon withdrawal.

Celsius’ high crypto interest account qualifies as an unregistered security, and the company lacks a money transmitter licence to offer investment services in the state, according to the financial regulator.

DFR thinks Celsius operated without regulatory control and exposed retail clients to high-risk investments, which resulted in substantial losses. In light of these concerns, the state financial regulator has joined the multistate inquiry against the problematic cryptocurrency lender.

“The Department thinks Celsius engaged in an unregistered securities offering by offering retail investors bitcoin interest accounts.” Additionally, Celsius lacks a money transmitter licence. Due to the aforesaid concerns, the Department has entered a multistate investigation of Celsius.”

Vermont is the sixth state in the United States to launch an investigation into the crypto interest rate accounts of Celsisus. As previously reported, Alabama, Kentucky, New Jersey, Texas, and Washington have opened investigations into the troubled crypto lender after it halted all withdrawals, swaps, and inter-account transfers on June 13, a day after its CEO Alex Mashinsky stated that everything is fine with the company.

During the bull market, Celsius became one of the leading crypto lenders in the business, managing billions of dollars in customer assets and generating high interest rates for account holders. While authorities and analysts did warn of the risks connected with such high-interest lending products, crypto lenders continued to play it down, claiming it was a scheme by greedy banks.

According to a recent story in the Financial Times, Celsius aggressively invests client cash in dangerous decentralised finance (DeFi) yield products. The compliance team of the cryptocurrency lender had raised concerns as early as February 2021, when internal papers revealed that workers were permitted to invest in funds without specific authorisation and without compliance checks. This supposedly assisted the company in concealing its losses.

However, with the onset of the bear market in May, precipitated by the collapse of the Terra ecosystem, the flaws began to emerge. Multiple sources have emphasised that market conditions are not the primary cause of the demise of crypto-lending companies like Celsius. In fact, their mismanagement and corrupt business methods have led to their current situation.

Celsius is in the process of employing new legal teams and developing reorganisation measures to avoid bankruptcy. Over the past few weeks, the company has also moved to repay other DeFi debts, having paid $20 million in USD Coin (USDC) to Aave on July 11 and the remaining $41.2 million debt to Maker protocol on Thursday, thereby releasing over $500 million in Wrapped Bitcoin (wBTC) collateral.


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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