California’s Department of Financial Protection and Innovation (DFPI), continues to take actions against crypto-interest account providers. They are not complying with local law. After directing BlockFi and Voyager not to offer their services in the state, DFPI issued a cease and desist order to Celsius.
This order means that the crypto lending platform in bankruptcy must cease all sales and marketing of securities in California.
The Aug. 8 publication of the order claims that Celsius Network’s CEO Alex Mashinsky made material misrepresentations in relation to the offer of crypto-interest accounts. Particularly, he understated the risk of digital asset deposits.
According to the Department the unmentioned risk includes the possibility that third-party custody service might lose access digital assets; the chance that lenders wouldn’t be able to return Celsius’ collateral in time; and the risk Celsius won’t have sufficient assets to meet customer withdrawal requests in the case of an unexpected request for withdrawals.
Related: Hodlnaut, a crypto lending platform, suspends its services because of liquidity crisis
In violation of California law, Section 25110 of the Corporations Code, the platform is accused of not allowing digital assets to be deposited as securities. A permit must be obtained from the DFPI in order to sell such securities in the state.
The DFPI issued two cease-and-desist orders to BlockFi, Voyager and their respective affiliates in July 2022. Voyager, a cryptocurrency exchange that was affiliated with Three Arrows Capital (3AC) failed hedge fund, filed for Chapter 11 bankruptcy on July 6.
On June 13, Celsius stopped all rewards and withdrawals. Since then, they have halted margin calls and liquidations as well as issuing new loans. Celsius lawyers claimed during the bankruptcy hearing that Celsius was free to “use and sell, pledge and rehypothecate these coins”, as users had transferred the title to the firm according to its terms of service.