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The U.S. Securities and Exchange Commission is investigating crypto-lending platforms Celsius Network, Voyager Digital Ltd. and Gemini Trust Co., which pay customers considerably higher interest rates than most traditional banks pay savings account holders.
The investigation is part of a broad look at companies that pay interest on cryptocurrency deposits, people familiar with the matter told Bloomberg.
At issue is whether the companies’ offerings should be registered as securities. Securities are defined as fungible, negotiable financial instruments that hold some type of monetary value. They represent ownership in a publicly-traded corporation via stock; a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option, according to Investopedia.
If a cryptocurrency is determined to be an investment contract and therefore a security, it is subject to SEC regulation and must either be registered or be subject to an exemption from registration.
The SEC’s main concern is with high-yield offerings by crypto lending services which lend out their digital coins to other investors, raising concerns about investor protection, Bloomberg reported.
Crypto-lending firms offer rates on many tokens of 3 percent to 18 percent, paid in digital coins. By comparison, the average bank savings account yields 0.06 percent. Unlike bank deposits, the crypto accounts aren’t federally insured, meaning investors can lose their principal.
Celsius Network sent out margin-call notices to an unknown number of customers who took out loans backed by cryptocurrencies after a brutal week last week that saw the prices of most digital coins fall dramatically. Some borrowers tweeted about the margin calls over the weekend.
SEC Chairman Gary Gensler promised in August 2021 to come down hard on the unregulated crypto platforms and police crypto to the maximum possible extent. “We just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West,” Gensler said in a prepared statement to the Aspen Security Forum. “We have taken and will continue to take our authorities as far as they go.”
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In October 2021, the New York State Attorney General’s office cracked down on Celsius and crypto exchange BlockFi, alleging wrongdoing and issuing a cease and desist order. Coinbase, the largest U.S. crypto exchange, had its crypto yield product shut down before it even launched after the SEC threatened to sue.
The SEC hasn’t accused Gemini, Celsius or Voyager of doing anything wrong and not all agency queries lead to enforcement actions, Bloomberg reported.
“We are one of many companies the SEC has reached out to regarding crypto yield products,” Gemini spokeswoman Carolyn Vadino said in a statement. “We are cooperating voluntarily with this industry-wide inquiry.”
“All discussions with regulators are confidential,” said Bethany Davis, a spokeswoman for Celsius. “We always have, and will continue to, work with regulators in the U.S. and globally to operate in full compliance with the law.”
Responses on Twitter included skepticism and anger towards the SEC. “We all know they do no ‘investigating’. They just sue” tweeted mduncanvm.
“@GaryGensler Don’t you have anything better to do than let people earn yield you mfer? You want them nice and poor earning dog shit @BofA_News” tweeted Cattle “WE PRINT IT DIGITALLY” – j.pow.
