Cryptocurrency lending platform Celsius now under scrutiny by securities regulators in Alabama, Texas and New Jersey
Celsius, a platform that facilitates trading and lending of digital assets, was issued a cease-and-desist order by the New Jersey Bureau of Securities last Friday. The order requires the platform to stop offering its interest-bearing crypto products to customers in the state through October. On the same day, the Texas State Securities Board scheduled a hearing for February 14, 2022 to determine whether a similar cease-and-desist order should be imposed in Texas.
These actions from Texas and New Jersey follow an order issued Thursday by Alabama, which requested that Celsius explain why it did not consider its yield product a security. The State of New Jersey confirmed Friday that the NJBoS decision was based on the determination that Celsius’s yield products were being offered illegally because they had not been registered as securities.
The New Jersey statement also noted that volatility in the cryptocurrency market exposes investors to elevated risk, especially given the current absence of a comprehensive regulatory framework for crypto. Regulators added that unregistered securities pose a significant danger because issuers are not subject to the disclosure obligations that help protect investors.
“Investors in unregistered offerings, such as Celsius Earn Rewards accounts referenced in the order, may not receive information about the specific investment strategies the issuer uses to generate returns….”
The Texas securities regulator similarly declared that Celsius is not registered in that state as a “money services business” and pointed out that the company is not licensed by the U.S. Securities and Exchange Commission, which means its activities may violate Texas law. The agency also cited the lack of disclosure of material information needed for investor decision-making as a key basis for its action.
New Jersey’s recent move follows a July decision in which regulators barred BlockFi from offering its Bearing Interest Accounts (BIAs). At that time, BlockFi faced parallel regulatory pressure from multiple states, including Alabama, Texas, Vermont and Kentucky.
Scrutiny of crypto lending and interest-bearing products has intensified as the SEC and state regulators seek to bring more clarity and oversight to the sector. Regulators commonly treat crypto yield products as securities because they operate similarly to unsecured debt: they promise returns generated by the platform’s activities. As a result, these products generally must be registered as securities before being offered to the public. It is also notable that many crypto yield products advertise significantly higher interest rates than traditional bank offerings—Celsius, for example, has promoted rates of up to 17% depending on the asset.
As regulators continue to evaluate where lending, staking and interest-bearing services fall within securities law, firms offering these products may face additional restrictions, enforcement actions or requirements to register and disclose material information to investors. Consumers and market participants should be aware of these developments and the potential risks posed by high-yield crypto products that lack standard investor protections.