California regulator issues a “cease and desist” order to Celsius
The Department of Financial Protection and Innovation of California (DFPI) has ordered popular crypto lender Celsius to stop selling securities within the state. In a “desist and refrain order” by the regulator, Celsius was accused of relaying material misrepresentations and omissions in its offering of crypto interest accounts. According to the agency, the lending firm misled its investors in the country about the risks of depositing digital assets.
The DFPI highlighted some of the risks hidden by Celsius. One of the risks is that third-party custody services might forfeit access to virtual assets; another risk is that lenders would not return Celsius’ collateral on time; there is also the risk of a possibility of an immediate request for withdrawals, Celsius wouldn’t possess adequate assets to meet customer withdrawal demands.
The agency indicted Celsius for failing to qualify the deposited virtual assets as securities. This, according to DFPI, amounts to a breach of corporations code section 25110 of the California legislation. The section mandates that every firm intending to sell any form of securities must secure a license from DFPI. Celsius allegedly defiled the section, prompting the agency to stop its market and selling securities within the country.
This development consequently put Celsius in the register of firms that have received “cease and desist” orders from the regulator. Recall that in July, the DFPI directed the stoppage of the operations of Voyager Digital and BlockFi.
However, the “cease and desist” order on Celsius in California is coming when the lender struggles to recover from its liquidity issues. Recall that the prevailing crypto winter had plunged the network into a crisis. This, as reported, compelled Celsius to temporarily halt rewards and withdrawals for all users on its platform.
The company embarked on a robust restructuring process to contain the crisis. As part of the restructuring plan, Celsius hired new directors, David Barse, founder and CFO of XOUT Capital and DMB Holdings, and the Founder and Alan Carr, managing member of Drivetrain. With the new addition, Celsius CEO, Alex Mashinsky, believes the protocol now has a “strong and experienced team in place to lead Celsius through this recovery process.”
Additionally, Celsius filed a Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the Southern District of New York. The filing, as revealed, is consistent with existing proceedings under the US Bankruptcy Code. Notably, Celsius intends to harness the filing in revamping its operations. Accordingly, the court granted the first hearing to Celsius last July.
At the first hearing, the court granted several relief motions to Celsius and ordered the initiation of the creditors’ committee. The judge, however, announced August 10 as the date for the second hearing. A few weeks after the ruling, Celsius submitted a plea to the court, calling for postponing the second hearing. The crypto lender cited the need for the committee to have more time to carry out its functions. The plea was granted, and the second hearing has now been postponed to August 16.
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