NYAG in open war with crypto lenders — and it wants Tether for dessert

The NYAG's office has given a slew of crypto lending platforms two weeks to provide detailed information about how they operate, or else.

In another blow to the crypto lending industry, the New York Attorney General (NYAG) has sent two platforms cease and desist (C&D) orders and three other lenders inquiry letters this week, according to a Monday press release.

Cryptocurrency lending businesses, which regulators have previously considered as allowing US citizens to leverage unregistered securities offerings, are now formally viewed similarly by the NYAG.

The NYAG appears concerned that New Yorkers can buy, sell, and loan crypto products illegally offered via various platforms. 

Two unnamed crypto lenders issued C&Ds will have a brief period of time — 10 to 14 days — to ensure that New Yorkers no longer have access to their products.

Twitter sleuths quickly pointed out that the NYAG’s uploads gave away at least two of the recipients — crypto lender Nexo appears to have received one C&D, while Celsius earned an inquiry letter.

No word yet on the other C&D target, or the two other platforms hit with inquiry letters.

In any case, the letters themselves are quite telling.

They demand much from the lending platforms, such as the names of all associated entities, a formal explanation of how every lending product works, how cryptocurrencies are used on the platforms, and if US dollars are utilized or not.

Crypto lenders must fulfil NYAG’s 15 bullet points

Bullet points two, three, and five are the most interesting.

Number two demands crypto lending platforms “identify and describe each lending, loan, interest, or deposit/earnings product they offer,” including fees and all relevant details of how the products are structured, and:

  • a list of all cryptocurrencies on offer, 
  • the minimum and maximum borrowing and lending amounts,
  • lending rates (and how the rates are calculated).

Point three requests platforms describe “what is done with the virtual currency that is deposited with your platform,” an apparent bid to determine how each platform provides customers with interest and returns.  

All wallet addresses that store cryptocurrency in relation to the protocol must be disclosed, as well as descriptions of how crypto is “pooled or otherwise combined, for any purpose.”

The NYAG also requested lists of all third-party lendees and borrowers that might handle user crypto, as well as documentation for “any employees, board members, affiliates, internal trading desks, or other similar persons or entities who have used such hypothecated virtual currency for any purposes.” 

“Include the wallet address(es) used by those persons or entities for this purpose,” said the regulator.

NYAG very curious about Tether

While many individuals were under the assumption that the NYAG’s office would be hands-off in regard to cryptocurrency businesses after the $18.5 million settlement with Tether (USDT), the Attorney General seems to have other ideas.

Indeed, the letters of inquiry include specific questions regarding Tether, including how USDT is used by the lending platforms, if the lending platforms work with Tether’s sister companies (including Bitfinex and DigFinex), and whether there are contractualized agreements between the lenders and the corporate leadership at Tether.

Point number five explicitly cites maverick stablecoin Tether (USDT), which has been banned entirely in New York since February.

“State whether you and/or your lending product solicits, accepts, loans, or accepts as collateral, [USDT], and provide details regarding the use of USDT in connection with your product,” said the NYAG.

It also requests:

  • all contracts, agreements, or other communications with Tether (or other affiliated persons or entities),
  • a list of users and clients that have provided, been loaned, or placed USDT as collateral with full transaction details,
  • a list of transactions that include USDT, including all relevant transaction details.

The letters suggest that not only will the NYAG be taking a hard look at the cryptocurrency lending platforms themselves, but also the customers that they’re taking on as clients, with the 12th request stating:

“In a sortable Excel spreadsheet, provide a list of all visits, log-ins, or accessing of your website or platform, that reflects or suggests a log-in or access from New York,” including names, dates, times, and other data.

Celsius guy Alex Mashinsky recently let his penchant for Tether loans slip on Twitter.

Read more: [Court won’t dismiss crypto traders’ $3B Tether market manipulation case]

It’s worth noting the NYAG will be seeking IP addresses and “any other captured information.”

All this while crypto lender BlockFi has been facing-off against regulators in five other US states in the wake of cease and desist orders, while Celsius has three states questioning whether it’s violated securities laws.

Meanwhile, Coinbase and its Coinbase Lend product were met with a Wells Notice by the SEC and a closure of the offering.

In a statement to Protos, Nexo chief exec Antoni Trenchev said:

“Nexo is not offering its Earn Product and Exchange in New York, so it makes little sense to be receiving a C&D for something we are not offering in NY anyway.”

“But we will engage with the NYAG as this is a clear case of mixing up the recipients of the letter,” added Trenchev, before noting the platform uses IP-based geoblocking.

Protos also reached out to Celsius for comment.

In any case, the NYAG clearly has no chill when it comes to crypto lending platforms — and it hasn’t forgotten about Tether.

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