InfoBytes Blog
DFPI orders crypto lender to cease offering unqualified securities
On August 8, the California Department of Financial Protection and Innovation (DFPI) issued a desist and refrain order to a now-bankrupt cryptocurrency lender and its CEO after determining that the company allegedly made material misrepresentations and omissions in the offering of crypto interest accounts, particularly with respect to understating the risks of depositing digital assets with the company. According to DFPI, since June 2018, the company funded part of its lending operations and proprietary trading through the sale of unqualified securities in the form of digital asset interest-earning accounts known as “Earn Rewards” accounts. DFPI found that the company allegedly offered these accounts to consumers without first qualifying them as securities in compliance with California’s Corporate Securities Law. Additionally, DFPI contended that the company failed to fully disclose material aspects of its business and Earn Rewards accounts, and claimed that the CEO failed to disclose material aspects of the company’s business, made materially misleading statements, or omitted material facts necessary to ensure the statements were not misleading. In June, the company suspended the fulfillment of customer withdrawals from its crypto interest accounts and filed for Chapter 11 bankruptcy reorganization on July 13.
DFPI ordered the company and CEO to desist and refrain from further offers and sale of securities in California, including but not limited to the Earn Rewards accounts, unless such sale has been qualified under California law or unless the security or transaction is exempt from qualification. The company and CEO were also both ordered to desist and refrain from offering securities in California by means of untrue statements of material fact or omissions of material fact.