Celsius Network logo seen displayed on a smartphone screen, on the side of Bitcoin cryptocurrencies

California watchdog issues cease and desist order against Celsius Network

A California financial regulator has become the latest to take action against Celsius Network, the digital lender whose collapse has exposed the gaping holes in entities that promised their users deliverance from ‘exploitative banks.’

California’s Department of Financial Protection and Innovation (DFPI) recently announced a cease and desist order against Celsius, accusing the lender of offering products that violate the state’s securities laws.

The DFPI oversees financial services in the state, from banks and credit unions to money transmitters and nonbank mortgage lenders.

The regulator targeted Celsius’ interest-earning accounts, which the company referred to as Earn Rewards accounts. It marketed the product to investors all across the U.S., with the DFPI saying that over 48,000 Californians had opened the Earn Rewards accounts with Celsius. 

“The Earn Rewards accounts offered and sold by Celsius are securities in the form of investment contracts subject to qualification under the Corporate Securities Law of 1968. These securities are being offered or sold in this state in issuer transactions. The Department has not issued a permit or other form of qualification authorizing any person to offer or sell these securities in this state,” it said.

In addition, the regulator took issue with the company’s materially misleading statements and omissions as it marketed its products to Californians. It touted the accounts as “safe” and claimed the investors would have “24/7 access” to their accounts. However, it conveniently failed to reveal the kind of business it engages in with investors’ funds, the market risk it exposes itself to, the risk that a bank run would subject it to, and more.

DFPI further took issue with Alex Mashinsky, the Celsius CEO who before the collapse was a renowned evangelist for anti-establishment, castigating all banks as exploiters. 

“Mashinsky represented on numerous occasions that even in a worst-case scenario, Earn Rewards Investors would be able to timely withdraw their investments and would not suffer losses on their investments, and continued to make representations that it was safe to deposit assets with Celsius even in the days leading up to the company’s decision on June 12, 2022, to suspend customer withdrawals,” the regulator said.

The regulator believes that Earn Rewards accounts are securities in the nature of investment contracts and has ordered Celsius, any of its subsidiaries and Mashinsky “to desist and refrain from the further offers and sale of securities in California, including but not limited to the Earn Rewards accounts.”

The DFPI is just one among dozens of regulators that are going after Celsius. While some have only started enforcements against the lender after its collapse, some, like state security watchdogs in Texas, Alabama, and Kentucky, have been probing Celsius for most of 2022. The investigations have spread beyond the U.S., with Canadian provincial watchdogs now investigating the lender.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

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