California State Department of Financial Protection and Innovation (DFPI) has ordered Celsius to stop the sales of securities offerings after previously ordering BlockFi and Voyager to do the same.
The Department of Financial Protection and Innovation (DFPI) of California continues to pursue legal action against companies that provide cryptocurrency interest accounts but do not adhere to local regulations.
The DFPI issued a quit and refrain order to cryptocurrency loan company Celsius after ordering BlockFi and Voyager to cease their activities in the state.
The injunction just directs the cryptocurrency lending platform—which is now going through the bankruptcy process—to cease all future activity regarding the sale and marketing of securities in the state of California.
The order, which was made public on August 8, alleges that Celsius Network and its CEO, Alex Mashinsky, misrepresented and omitted material information in connection with the provision of cryptocurrency interest accounts, particularly by downplaying the risks associated with making a deposit of digital assets.
The Department lists the following unstated risks: the risk that lenders would be unable to timely return Celsius’ collateral; the risk that Celsius would not have enough assets to meet customer withdrawal demands in the event of a sudden request for withdrawals; and the risk that third-party custody services might lose access to digital assets.
The platform is also charged with violating California law, specifically Corporations Code Section 25110, by failing to qualify the deposited digital assets as securities. A business needs to have a DFPI permit in order to sell these securities in the state.
The DFPI sent two cease-and-desist letters to BlockFi and Voyager in July 2022, respectively. On July 6, Voyager, a cryptocurrency exchange connected to the defunct hedge fund Three Arrows Capital (3AC), filed for Chapter 11 bankruptcy.
On June 13, Celsius stopped all users’ incentives and withdrawals, and they subsequently stopped margin calls, liquidations, and the issuance of new loans.
Platform attorneys stated during the first bankruptcy court that Celsius is free to “use, sell, pledge, and rehypothecate those currencies” because customers gave the company the title to their coins in accordance with the terms of service (ToS).
