California Is Investigating ‘Multiple’ Crypto Lending Companies

The state’s Department of Financial Protection and Innovation is looking at whether firms that have suspended customer withdrawals and transfers have violated its laws.

AccessTimeIconJul 12, 2022 at 9:53 p.m. UTC
Updated May 11, 2023 at 5:22 p.m. UTC

The California Department of Financial Protection and Innovation (DFPI) is investigating several U.S.-based crypto lenders after a series of prominent lenders indefinitely halted withdrawals and transfers between user accounts, according to a press release issued on Tuesday.

The department didn’t name the companies under investigation, but it did say it is eyeing "multiple" companies that “offer customers interest-bearing crypto asset accounts,” or crypto-interest accounts, and service providers that “may not have adequately disclosed risks customers face when they deposit crypto assets onto [lenders’] platforms.”

Over the past few months, several prominent crypto lenders have frozen withdrawals and transfers as they contend with liquidity crises spurred by a dramatic market downturn that has caused crypto prices to plunge to their lowest levels since December 2020, with bitcoin tumbling below $20,000 several times in June.

In mid-June, Celsius announced it would pause all withdrawals and transfers between user accounts, citing “extreme market conditions.” Then, in July, fellow U.S.-based lender Voyager Digital announced it would temporarily pause customer trading, deposits and withdrawals. It then filed for Chapter 11 bankruptcy just days after the announcement.

The California investigation also comes on the heels of public comments from top regulators and politicians warning consumers about the risks of crypto lending.

U.S. Senator Elizabeth Warren (D-Mass.) issued an email statement in June warning crypto lending platforms’ claims of double-digit rates were often “too good to be true.”

“Too many crypto firms have been able to scam customers with too-good-to-be-true claims about safe sky-high returns, leaving ordinary investors holding the bag while insiders make off with their money,” Warren wrote.

Previous California DFPI investigations

The California DFPI has pursued investigations and taken actions against several crypto companies, including BlockFi and Voyager Digital, in recent months. The department found that certain crypto interest accounts from those platforms constituted unregistered securities.

Securities registration is essential for ensuring that investors receive adequate information so they can make decisions regarding riskier-than-average investment opportunities such as crypto-interest account arrangements, the department said.


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Elizabeth Napolitano

Elizabeth Napolitano was a news reporter at CoinDesk.