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California’s Department of Financial Protection and Innovation (DFPI) has now issued a desist and refrain order against Celsius. As such, the bankrupt crypto lender will not be to continue the sale and marketing of securities in the state of California.
The development comes a month after the DFPI slapped two cease and desist orders to other crypto lending platforms – BlockFi and Voyager – hammered by the contagion.
DEPI’s Allegation
The authorities have alleged that the “Earn Rewards” accounts offered and sold by Celsius are securities even as the department issued no such permit to authorize the activities. The DEPI also claimed that Celsius and its CEO Alexander Mashinsky failed to fully disclose material aspects of its business and Earn Rewards.
The order dated August 8th alleged that Mashinsky made “materially” misleading statements. It also pointed out that the exec continued to tout that the investors of Earn Rewards would be able to timely withdraw their investments and not suffer losses on their investments on multiple occasions leading up to the company’s suspension of customer wallets on June 12th.
The agency also found that Celsius offered accounts that allowed its users to earn interest on their deposited digital assets. It, however, did not qualify those accounts as securities in line with California law – Corporations Code Section 25110.
Celsius had paused customer withdrawals from the interest accounts on June 25th, following which, it went on to file for Chapter 11 bankruptcy a couple of weeks later.
Piling Legal Troubles
In addition to California’s DEPI, multiple state agencies are currently investigating the platform. Vermont’s Department of Financial Regulation (DFR), for one, also alleged that Celsius has been engaged in unregistered security offering to retail investors. The watchdogs also claimed that the firm is “deeply insolvent” with no assets and liquidity to honor its obligations to account holders and other creditors.
Former executives of Celsius had made bombshell claims that the company was mired in internal issues such as poor risk management, disorganization, and market manipulation.
Blockchain data also revealed that the wallet address associated with Mashinsky may have sold some of its CEL token holdings, which have added to Celsius’financial struggles.