Texas, Alabama Expand Investigations into Celsius, Voyager

Stephen Ehrlich; Alex Mashinsky — *Voyager CEO Stephen Ehrlich (L) and Celsius CEO Alex Mashinsky (R)*

Regulators in Texas and Alabama announced Friday they were expanding their investigations into Voyager Digital and Celsius Network.

“What we’re seeing now is that a lot of these crypto-lending firms may not have fully disclosed what they were doing on the backside with investors’ money,” Texas State Securities Board enforcement chief Joe Rotunda told Bloomberg. “The risks associated with those types of lending practices, or even the other types of transactions they are engaging in.”

Amanda Senn, chief deputy director at the Alabama Securities Commission, issued the same announcement. “We are investigating these companies and trying to figure out what happened and why,” Senn said. “We are making inquiries. It’s still the initial stages, but we have a responsibility on behalf of our investors in our states.”

Celsius froze customer assets on June 13, while Voyager did the same on July 1. The disgraced companies offered crypto exchange and lending services prior to the move. Voyager filed for Chapter 11 bankruptcy on Tuesday, while Celsius has retained a litany of legal and advisory firms to assist it in determining whether to restructure or file for bankruptcy.

The announcement from state officials came the same day that blockchain analytics firm Arkham Intelligence published a damning report about Celsius’ business practices. Researchers said the company purchased more than $350 million of its native cryptocurrency, CEL, artificially inflating the price and enriching CEO Alex Mashinsky as he sold his own stash.

Three Arrows Capital’s (3AC) insolvency last month served as the catalyst for Voyager’s bankruptcy. The Singapore-based 3AC took a loan from Voyager in excess of $650 million but lost the cash making failed bets on the price of bitcoin. That company filed for bankruptcy in New York on July 2, days after a court in the Virgin Islands ordered it into bankruptcy in that jurisdiction.

Both Celsius and Voyager engaged in the “rehypothecation” of customer assets — meaning they handed the money over to creditors, including 3AC, who lost it.

State regulators have been investigating whether Celsius’ and Voyager’s offerings constituted unregistered securities, but said Friday they were also looking at whether the companies properly disclosed material information on their loans and the creditworthiness of their borrowers. They did not say anything about the potentially criminal allegations in Arkham’s Friday report.

State litigation against Voyager will be stayed as a result of the company’s bankruptcy filing, a level of protection that Celsius presently does not have.