California’s Officials Order Celsius to Halt Security Sales

California’s Officials Order Celsius to Halt Security Sales

Celsius continues to face regulations from various states and countries after declaring bankruptcy. 

Celsius, a cryptocurrency lending platform, has received a notice from the Department of Financial Protection and Innovation of California (DFPI) to stop offering its services

According to the document issued on August 8th, Celsius has violated sections 25110 and 25401 of the Corporations Code

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The Corporations Code section 25110 states that it prohibits the “offer or sale of unqualified, nonexempt securities in issuer transactions”. In this case, according to the Department of Financial Protection and Innovation, Celsius has sold or offered Earn Rewards. These “rewards” are considered to be securities and have to have a permit. Based on the information found in the order, Celsius did not have such documentation. 

Celsius also violated the Corporations Code section 25401, which states that the entity cannot sell or offer securities by using misleading or deceptive statements in oral or written form. Based on the documentation, Celsius used untruthful statements to sell the Earn Interest accounts. 

Due to these violations, the state of California is ordering Celsius to halt offering or selling its securities. 

The Californian regulator is also blaming Celsius and its CEO, Alex Mashinsky, for not disclosing the risk users may face when depositing digital assets. The order distinguishes these risks: 

The risk that third-party custody services might lose access to digital assets; the risk that lenders to which Celsius sent digital asset collateral would be unable to return Celsius’ collateral in a timely manner; the risk that in the event of a sudden request for withdrawals that Celsius’ own attempts to unwind illiquid positions may prevent it from having adequate assets to meet customer withdrawal demands.

This is not the first time the Californian regulator has imposed such sanctions. Earlier this year, DFPI ordered BlockFi and Voyager to stop offering their services

It is worth noting that on July 13th, Celsius filed for bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York. 

Gile K. - Crypto Analyst

by Gile K. - Crypto Analyst, BitDegree