Voyager Digital in the crosshairs of state regulators

Voyager Digital is the latest crypto exchange under siege for its interest-bearing crypto accounts, with regulators in seven states demanding information or issuing cease-and-desist orders.

New Jersey-based BlockFi paid $100 million on Feb. 14 to settle state and federal lawsuits calling a similar high-yield account an illegally unregistered securities offering. The accounts typically offer much higher interest rates — 9.5% in BlockFi’s case — than traditional bank savings products.

Centralized exchanges’ interest-bearing accounts mirror one of the most popular decentralized finance (DeFi) products: lending borrowing platforms. These offer crypto owners who lock up tokens in a loan account high returns on digital assets lent for crypto collateral.

Read more: PYMNTS DeFi Series: What is Yield Farming and Liquidity Mining?

A big difference is that decentralized platforms are much harder for the app to target.

States move first

There is another big difference, however. In this case, state regulators are ahead of the Securities and Exchange Commission (SEC), filing suit against Voyager Digital.

Regulators in Indiana, Kentucky, New Jersey and Oklahoma issued cease and desist orders, while Alabama, Texas, Vermont and Washington sent show cause orders asking information on Voyager Earn accounts, the company said in a Wednesday (March 30) Press release. If so, the company has stopped accepting new accounts or transfers to accounts.

Echoing the analogy of the SEC commissioner’s choice Gary GenslerActing Attorney General of New Jersey Matthew Platkin said yesterday’s enforcement action “speaks loud and clear that the cryptocurrency securities market is not the Wild West, and that investor protection laws absolutely apply.”

What is the problem?

Platkin said investors in Voyager Earn accounts “may not receive any information about the specific investment strategies used by the issuer to generate investment returns, may not be informed about the creditworthiness of the counterparties with which the issuer is doing business and may not be aware of the use of leverage or other risky investment strategies employed by the issuer to generate a return.

Promising to “hold accountable anyone who threatens the integrity of our financial industry and puts investors at risk,” Platkin said the state Securities Office “will make sure everyone plays by the rules, by especially when it comes to the ever-changing cryptocurrency market.”

Voyager, for its part, says it “firmly believes” that its Earn program and Voyager Earn accounts are not securities and that it will continue to defend its position.

“Voyager supports proper regulation and will do its best to demonstrate to these regulators that Voyager has complied with the law,” it said in a statement.

Move fast be broken

On the SEC side, enforcement action has followed a pattern of picking a juicy target, hitting it and a few others with fines for what it says are securities violations, then watching the rest. fall into line – despite an obvious lack of clarity on what the rules of crypto investing are.

This clarity is something the industry has been asking for almost constantly for the past five years.

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So far, only one company, Ripple, has been willing to vigorously oppose – or risk – enough to sue the SEC.

More here: Ripple Lawyer Confident SEC Case will end in April

In this latest round of enforcement actions, BlockFi was the first targeted, with reports that the agency was investigating BlockFi for leaking in November. Then, in January, news broke that the SEC was investigating three more crypto companies over interest accounts — Voyager Digital, Celsius Network, and Gemini Trust.

Related Reading: Crypto Lenders Gemini, Voyager and Celsius Network Under SEC Microscope

Interestingly, the SEC warned Coinbase not to launch a similar product, Coinbase Earn, in September, threatening to sue if launched. This sparked outrage from Coinbase, which is known to work closely with regulators, mainly because the agency has not said why it considers the program a securities offering.

Other news: Coinbase kills loan product amid SEC wrath

However, that was well before the BlockFi investigation and its $100 million settlement, which may have significantly calmed Coinbase’s anger.

Also Read: New SEC Top Cop: No Free Pass for Unregistered Crypto Lenders

And it’s worth noting that Coinbase informed the SEC of its plans ahead of time, suggesting that’s why the company got off easy.

This is particularly in light of comments by the SEC’s new Chief Enforcement Officer, Gurbir Grewal, on Feb. 28.

Speaking about interest-bearing accounts and the crypto lending products that support them, he said “the message from the agency is that we will see their conduct more favorably if they come in – like what remedies will look like, including penalties, and finding a way to comply with securities laws. This is the benefit entities get by reporting violations themselves and working with us. »

That’s pretty much what the agency has said about every other area of ​​cryptocurrency it’s focused on, starting with initial coin offerings, or ICOs, in 2018.

However, with newly emboldened state regulators beginning to work with SEC involvement, Voyager Digital’s action could signal the start of a whole new enforcement battle.



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