According to the state financial regulator, Celsius was accused of violating state security laws by offering customers high-interest crypto rate accounts and using client funds unethically to invest in illiquid goods.
Vermont’s Department of Financial Regulation issued a caution against Celsius, a troubled crypto lending company Celsius on Tuesday. It reminded users that Celsius is not licensed to provide its services in Vermont.
DFR claimed that Celsius was “deeply insolvent” with no “assets or liquidity to meet its obligations towards customers. The crypto lender was accused by the state regulator of mismanaging customers funds, allocating them towards risky and inliquid investments.
“In addition to the usual risks associated with cryptocurrency investing, Celsius interest account holders were also exposed to credit risk that Celsius might not be able return their tokens after withdrawal.
The financial regulator pointed out that Celsius’ high-crypto interest account is unregistered security. Furthermore, the firm does not have a money transmitter license in order to offer investment services in the state.
DFR believes Celsius was operating without regulatory oversight, exposing retail customers to high-risk investments that could result in large losses. These concerns were taken into consideration by the state financial regulator, who joined the multi-state investigation of the crypto lender in trouble.
The Department believes Celsius is involved in unregistered securities offerings by selling cryptocurrency interest accounts to retail investors. Also, Celsius does not have a money transmitter licence. A multistate investigation into Celsius has been initiated by the Department.
Vermont was the sixth American state to open an investigation into Celsisus’s crypto interest rates accounts. Cointelegraph earlier reported that Alabama, Kentucky and Texas, New Jersey and Texas opened investigations into the troubled cryptocurrency lender . This was just one day after the chief executive officer Alex Mashinsky said all is well at the firm.
Celsius was one of the most prominent crypto lenders during the bull market. He managed billions of customers’ funds and provided high interest rates to account holders. Although regulators and analysts warned about the risks of high-interest lending products, crypto lenders refused to acknowledge them, saying it was a greedy banker ploy.
Financial Times recently reported that Celsius was aggressively betting with client funds and placing them in high-risk Decentralized Finance (DeFi) yield options. As early as February 2021, the compliance team of the crypto lender raised concerns. Internal documents revealed that employees could invest in funds without having to obtain explicit permission. According to reports, this helped the firm hide its losses.
The faults began to emerge with the emergence of the bear market that started in May, triggered by the Terra eco-system crash. Numerous reports have shown that market conditions were not the sole reason Celsius’s demise. They were actually unable to manage their businesses ethically and have been pushed to the brink by mismanagement.
Celsius is currently looking for new legal staff and is working on restructuring plans in order to avoid bankruptcy. Over the past few weeks, the firm has been working on several DeFi loans. It paid Aave 20 million USD Coin ( USDC) on July 11, and made payment to Maker protocol on Wednesday, leaving more than $500 million in wrapped Bitcoin (wBTC).