London-headquartered Celsius advertises annualized yields of nearly 18% on its Earn Rewards. As of August 18, 2021, Celsius held $12.5 billion in assets on behalf of over nearly 350,000 Earn Rewards account holders globally.
The New Jersey Bureau of Securities Chief last week alleged that Celsius’ Earn Rewards accounts — which constitute unlawful securities — have raised $14 billion for the company, and served it a cease and desist.
State securities watchdogs are mandated to protect constituents from high-yield products that lack sufficient information for investors to make informed decisions about risk.
In a similar action in July, five state securities regulators classified interest-bearing accounts by Celsius’ peer BlockFi as unregistered securities.
And just like BlockFi chief exec Zac Prince, Celsius’ Alex Mashinsky “wholeheartedly” disagrees with the allegations.
Celsius ‘redistributed wealth’ to Mashinsky
In Celsius’ case, regulators have said its high-yield accounts are unregistered securities, and don’t disclose how risky its products are to consumers.
The Alabama Securities Commission explained Celsius’ so-called Earn Rewards program “constitutes the solicitation of an investment of money; from which an investment return is expected; with such investment return based on the managerial efforts of Celsius.”
As such, “the solicited investments […] are investment contracts,” and securities, said the regulator. The federal definition of a security includes investment contracts, pursuant to the 1946 Supreme Court case, SEC v. Howey.
Celsius’ lead brain and career rich guy Mashinsky doesn’t think so. He’s offered to help “educate” the regulators.
“[Securities watchdogs] should be cheering for us, as we’re effectively helping redistribute wealth and provide opportunity for everybody, not just the 1%,” he said during an AMA last week (via CoinDesk).
Celsius has certainly redistributed wealth to Mashinsky. He owns about $240 million worth of CEL, his project’s native token (itemized by his username “The Machine”) — more than any other individual.
Mashinsky also once gifted 4% of CEL’s circulating supply to his wife. Today, her CEL holdings add another $26 million to the couple’s net worth.
The Texas State Securities Board notified Celsius of its views over four months ago. Nevertheless, the project has continued to solicit investment in defiance of Texas’ notice.
CEL dropped 6% after the news broke on Friday. The token currently trades 35% lower than its $8 all-time high set in June. Still, CEL has rallied over 600% since this time last year.
Celsius is now ordered to appear at a hearing in Texas in February. If it doesn’t, the company is likely to receive a cease and desist from state regulators.
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