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The US state of Kentucky has issued an emergency cease and desist order against crypto lender Celsius after it failed to register securities for its investment contract

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The US state of Kentucky's Department of Financial Institutions has banned cryptocurrency lender Celsius Network from "promoting or selling" its interest-earning accounts in the state.

Source: Decrypt

Nian Yinsi Tang, Odaily Planet

Abstract:

-- Kentucky's Department of Financial Institutions banned cryptocurrency lender Celsius Network "promotes or sells" its interest-earning accounts in the state.

- Celsius's investment contracts qualified as securities but were not registered as such, the regulator said.

The Department of Financial Institutions in the US state of Kentucky has targeted cryptocurrency lenders as Celsius. Network filed an emergency cease and desist order prohibiting the company from "marketing or selling" its interest-earning account (EIA) in the state.

Celsius Network offers its clients cryptocurrency deposits and then lends the cryptocurrency to institutions to earn a return of up to 17 percent. "[customers] get new cryptocurrencies every week and borrow cash at 1%. There is no charge for buying cryptocurrencies, earning income, borrowing and transferring," the company's website declares.

However, according to Kentucky regulators, the company's interest-bearing accounts were actually securities that were sold without proper registration.

"The Ministry has become aware that the company is providing securities in exchange for assets deposited with the company in the form of investment contracts that allow passive investors to earn profits in the form of interest on assets deposited with the company, which is eligible for securities under the regulations." Kentucky regulators argue.

Under the order, 1,607 EIA were opened to 1,571 Kentucky investors over the past three years and four months. In total, the state's residents have stored about $17.6 million worth of various cryptocurrencies as Celsius, while the company paid just over $453,000 to investors over the same period.

Kentucky calls Celsius accounts security

As part of its justification, the regulator noted that all securities -- including Celsius's EIA -- must be properly registered.

"A review of my department's records shows that neither Celsius nor the EIA provided on its website has registered with our department as required by the relevant regulations," the order said. "Furthermore, it appears that neither Celsius nor the EIA have been authorized to obtain any exemption from registration under the relevant Act."

Celsius's EIA is not protected by the Securities Investor Protection Corporation (SIPC) and is not insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), the agency noted.

"As a result, Celsius investors face more risks than those who hold assets in most SIPC members' broker-dealers, banking and savings associations or credit unions," the regulator explained.

Decrypt has sought comment from Alex Mashinsky, CEO of Celsius Network, but did not receive a reply at the time of publishing.

With Kentucky, four US states have taken similar action against Celsius.

Just last week, the New Jersey Securities Department filed a cease-and-desist order against the company, requiring it to stop offering high-interest accounts in the state. On the same day, the Texas Securities Commission ordered the company to appear at an administrative hearing in February.

On September 16, the Alabama Securities Commission filed a cease and desist order against Celsius for the same reason.