Crypto lending platform Celsius is now under scrutiny from securities regulators in Alabama, Texas and New Jersey.
Celsius, a digital asset lending and exchange platform, received a cease-and-desist order from the New Jersey Bureau of Securities last Friday. The order required the platform to stop offering its interest-bearing crypto products to state residents by October. On the same day, the Texas State Securities Board summoned Celsius for a hearing on February 14, 2022, to determine whether a similar cease-and-desist order should be issued in Texas.
The regulatory actions in Texas and New Jersey follow an enforcement order issued Thursday by Alabama, which demanded that Celsius explain why it did not consider its yield product to be a security. The New Jersey authorities said in a statement on Friday that the NJBoS’s decision was based on the conclusion that the yield products were being offered illegally because they were not registered as securities.
The New Jersey statement also noted that the volatility of the cryptocurrency market exposes investors to elevated risk, and that there is currently no comprehensive regulatory framework overseeing crypto assets. It added that unregistered securities pose significant risk because they are not subject to the usual disclosure requirements.
“Investors in unregistered offerings, such as the Celsius Earn Rewards accounts targeted by the Bureau’s order, may receive no information about the specific investment strategies the issuer uses to generate investment income…”
The Texas State Securities Board likewise stated categorically that Celsius was not registered as a “Money Services Business” in Texas. The board noted that Celsius was not registered with the U.S. Securities and Exchange Commission and that its activities therefore violated Texas law. The board also cited the company’s failure to disclose material information that investors need to make informed decisions as a basis for the order.
The New Jersey action follows a prior decision in July that barred BlockFi from offering its variable interest accounts (BIAs). At that time, BlockFi faced similar regulatory pressure from other states, including Alabama, Texas, Vermont and Kentucky.
Scrutiny of crypto lending products has intensified as the SEC and state regulators aim to bring the crypto sector under clearer oversight. Regulators view crypto yield products as securities because they operate similarly to unsecured debt obligations and therefore should be registered before being offered. These crypto yield offerings also advertise interest rates that are substantially higher than traditional bank deposits. For example, Celsius has promoted yield returns up to around 17%, depending on the asset.
The recent enforcement actions reflect a broader push by state securities regulators to ensure investor protection, require appropriate registration and disclosure, and address the unique risks posed by the rapidly evolving crypto marketplace. Companies that offer interest-bearing crypto products may face additional orders, hearings or inquiries unless they comply with registration and disclosure obligations under state and federal securities laws.