(Bloomberg) — Texas on Friday took action against Celsius Network, accusing the company, which purports to be one of the world’s largest cryptocurrency lenders, of offering residents unregistered securities.
Texas filed a notice seeking a hearing to determine whether to issue a cease and desist order against the company. The action means Celsius will have to show why it shouldn’t be ordered to stop offering its products to state residents. The hearing is scheduled for February 14.
The move against Celsius came on the heels of similar actions against New Jersey-based competitor BlockFi Inc. taken by states including Texas and others in July, and in the week after Coinbase Global Inc. disclosed that the Securities and Exchange Commission had threatened to sue it if it offered its own yield product to depositors.
Celsius had more than $24 billion in “community assets” at the beginning of September, the company said, which would make it one of the world’s largest crypto lenders and interest-account providers, if not the largest. The company offers customers a yield of nearly 9% for deposits of U.S.-dollar stablecoins, such as Tether and USD Coin, as much as 6.2% for Bitcoin, and varying rates of interest on other cryptocurrencies.
Celsius and other companies that offer crypto interest accounts have said that they’re able to pay such high yields in part because they lend the deposits out at even higher rates to institutional investors, who need to borrow crypto to execute their own trades such as to short the market or engage in arbitrage.
But federal and state securities agencies have said the companies are likely running afoul of the law, and that the products, which sometimes are marketed as an alternative to bank savings accounts, should be registered with their agencies. Such registrations would entail more disclosures to investors and agency oversight.
(Corrects company name Celsius Network in headline)
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