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 Jul 13, 2022 at 2:21 p.m. UTC

Elizabeth Napolitano is a news reporter at CoinDesk.

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.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Elizabeth Napolitano is a news reporter at CoinDesk.

CoinDesk - Unknown

Elizabeth Napolitano is a news reporter at CoinDesk.