Crypto-lender Celsius Network is now under investigation by state security regulators in Alabama, Kentucky, New Jersey, Texas and Washington over its freezing of customer accounts due to “market conditions.”
Joseph Rotunda, enforcement director at the Texas State Securities Board said that the officials had met first thing Monday morning to begin investigating, and that they consider the probe a “priority.”
Celsius had blamed the freeze on “extreme market conditions,” as it paused swaps, transfers, and withdrawals between accounts. The company said it would put it “in a better position to honor, over time, its withdrawal obligations.”
Rotunda said, “I am very concerned that clients – including many retail investors – may need to immediately access their assets yet are unable to withdraw from their accounts. The inability to access their investment may result in significant financial consequences.”
Alabama Securities Commission Director Joseph Borg said Celcius was responding to investigator inquiries, but that it is still the early stages of the investigation. He added that in addition to Alabama, and investigations from Texas, New Jersey and Kentucky, the U.S. Securities and Exchange Commission is also investigating.
The SEC would not comment, nor did the New Jersey, Kentucky or Washington state securities regulators
Celsius and CEO Alex Mashinsky would not comment either.
Rotunda said his team found out about Celsius’ actions from the company’s blog post, which said they needed to take the action to “preserve liquidity.”
Celsius worked similar to a bank, in that crypto-owners would deposit their crypto with it, and it would then invest the crypto in the broader crypto market, including “decentralized finance” or DeFi sites. DeFi offer services from insurance to loans outside of the traditional finance sector, through the use of blockchain technology.
Celsius promised customers returns of up to 18.6% annually, which led crypto holders to pour their resources into it.
CEO Mashinsky had said in October that Celsius had $25 billion in assets, but that had dropped to $11.8 billion by May. As cryptocurrencies collapsed, Celsius was left without sufficient liquidity to return products to customers, and was forced to freeze accounts.
