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Financial Services Law Insights and Observations

DFPI orders crypto platform to halt operations

State Issues Securities Fintech DFPI Cryptocurrency Enforcement Digital Assets California

State Issues

On June 27, the California Department of Financial Protection and Innovation (DFPI) issued a desist and refrain order against a digital asset trading platform and two of its promoters for allegedly selling unqualified securities and making material misrepresentations and omissions to investors, a violation of California securities laws.

DFPI alleges that the platform leveraged a “multi-level marketing scheme” to award its promoters who sold unqualified securities to investors in the form of investment contracts and received cash investments ranging from $5,000-$20,000. Allegations also include that the platform “purported” to provide educational classes designed to empower the Latino community with respect to crypto asset trading. The order details that through these efforts to garner more investors, “misrepresentations of material fact [were made] to investors and potential investors, namely that investors would receive a return on their initial investment every three months.” Investors have allegedly not received any return on their initial investment. The commissioner found that the platform “fail[ed] to provide the promised returns on their purported investments” and that “[d]espite multiple requests, investors have not had their funds returned.”

The order requires the platform to desist and refrain from the offer and sale of securities and stop making misrepresentations about returns in California.