Written by Charles Thuo
Texas, New Jersey, and Alabama have all raised concerns about Celsius violating securities laws in the respective states. Alabama raised the first alarm shortly before Texas and New Jersey joined the fight too.
In an order dated September 16, the Alabama Securities Commission said it believes that the crypto lender violated the state laws by offering “Earn Rewards” programs. In a show cause order, the state regulator gave the crypto lender four weeks to state why it should not be issued with a cease and desist order (i.e. to explain how it is not violating the securities laws).
In Texas, the State Securities Board filed for a hearing on September 17, with the likelihood of enacting a cease to desist order against the crypto lender for offering securities that are not licensed at either federal, or state level, looking probable. Firms or businesses dealing in securities in Texas must be registered as a dealer with the United States Securities and Exchange Commission (SEC) or the state’s securities board, and have the securities products either permitted or registered.
The hearing will be held on February 14, 2022 and will either be online or in-person. Should the judge rule in favor of the Texas Securities Board, Celsius will be subjected to a cease and desist order. The cease and desist order will apply to Celsius and its affiliates which include Celsius US Holding, Celsius Network Limited, and Celsius Lending.
According to the Texas regulator, as of September 3, Celsius held over $24 billion worth of digital assets making it one of the largest firms offering decentralized finance services. Since June, the firm’s holdings are estimated to have grown by over 2300% between June 2020 and September 3, 2021. In June 2020, Celsius reported it held $1 billion in digital assets.
As of June 9, 2021, in Texas alone, Celsius held around $344 million in digital assets from over 9,000 local investors and businesses.
The suit filed by the Texas regulator came several months after Texas’ Enforcement Division of the State Securities Board warned Celsius that it was not complying with the state’s Securities Act. Specifically, the regulator argues that the Earn Interest-Bearing Accounts violate “Section 4.A” of the Securities Act because they consisted of “investment contracts, notes, or evidence of indebtedness regulated as securities.”
On the same day that Texas filed a suit against Celsius, the New Jersey Bureau of Securities issued a cease and desist order to the crypto lender, to stop offering interest-earning crypto products.
“Financial companies operating in the cryptocurrency marketplace are on notice,” said New Jersey’s acting attorney general Andrew Bruck, “ … 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.”
The New Jersey Securities Board issued a cease and desist order against the lender for, “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.”
According to the New Jersey regulator, Celsius raised about $14 billion from selling unregistered securities.