On Thursday, Joseph Rotunda, the director of enforcement in Texas said that securities regulators in different states in the US were investigating the decision of Celsius Network to freeze the transfer of funds and withdrawals via accounts on their platform. The crypto lender made the decision this week and different state regulators, such as that of Alabama, Washington, Texas, New Jersey and Kentucky, are looking into it. According to Rotunda, the officials had conducted a meeting and had begun looking into the matter on Monday morning. He also said that the investigation was a priority for them.
Celsius Sends the Market into a Frenzy
The announcement from Celsius Network sent the crypto market into frenzy, as it has already been very nervous after the collapse of the TerraUSD stablecoin. The crypto lender said that it was the ‘extreme market conditions’ that had driven the company to pause all transfers, swaps and withdrawals between the accounts. According to the company, this move would help it in honoring its withdrawal obligations in a better way.
Rotunda said that it was very upsetting to discover that many clients, such as retail investors, were unable to withdraw their funds. They could need access to their assets immediately and their inability to do so would have disastrous consequences. Joseph Borg, the director of the Alabama Securities Commission said that Celsius had responded to questions put forth by the regulators, but they had only just started investigating.
He also revealed that the Securities and Exchange Commission (SEC) had also gotten in touch with Celsius, but the regulatory authority did not provide any details and neither did Celsius. Rotunda revealed that he had had learnt about Celsius’ decision on Sunday night via the company’s blog post, which had stated that they needed to stabilize liquidity.
Past Troubles for Celsius
This is not the first time that Celsius has attracted scrutiny. The New-Jersey based firm had also attracted the attention of regulators in Texas, New Jersey and Kentucky back in September. They had issued a cease and desist order for the crypto lending platform, stating that it its interest-bearing product fell under the category of security and should be registered accordingly.
Back in February, the same regulators and the SEC had imposed a fine worth $100 million on BlockFi, a Celsius, competitor, for not registering its product. Celsius operates much like a bank, as it asks retail customers to make deposits in crypto, which are then invested in the crypto space, including the world of decentralized finance (DeFi).
The customers are then offered returns on their deposits and these are quite substantial. The maximum annual return that Celsius offers is around 18.6%. A lot of individual investors had deposited their cryptocurrencies with Celsius because of the attraction of high profits. Chief executive of Celsius, Alex Mashinsky said in October that the company’s total assets were worth $25 billion. A look at the Celsius website last month showed that this had declined to $11.8 billion, which could be because of the company’s exposure to TerraUSD.