Vermont Joins 'Multistate Investigation' of Celsius Network

Vermont regulators said Tuesday they were joining a “multistate” investigation of disgraced crypto lender Celsius Network, warning investors to “proceed with caution.”

In an afternoon statement, regulators from the state’s Department of Financial Regulation said they believed Celsius had “engaged in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors,” and noted the company also lacked a money transmitter license. “This means that until recently, Celsius was operating largely without regulatory oversight.

“Due to its failure to register its interest accounts as securities, Celsius customers did not receive critical disclosures about its financial condition, investing activities, risk factors, and ability to repay its obligations to depositors and other creditors,” they added. “The department has joined a multistate investigation of Celsius arising from the above concerns.”

The development comes after regulators in Texas and Alabama announced on Friday that they were expanding their own investigations into both Celsius and another crypto exchange and lender, Voyager Digital, to determine whether the ill-fated companies offered unregistered securities and properly disclosed information about their loans and the creditworthiness of their borrowers.

The companies both “froze” customer funds over the last month — Celsius on June 12, and Voyager on July 1.

Officials said Friday that state litigation against Voyager would be stayed as a result of that company’s July 5 bankruptcy filing, a measure Celsius has not taken. The Wall Street Journal reported over the weekend that Celsius had hired new restructuring lawyers from Kirkland & Ellis LLP to advise on its options. It had previously hired attorneys from Akin Gump Strauss Hauer & Feld LLP.

Adding to Celsius’ trouble, an Arkham Intelligence report published Friday found that Celsius used customer funds to purchase its native cryptocurrency, CEL, even as CEO Alex Mashinsky dumped his own holdings to the tune of nearly $40 million. Regulators have been mum on that issue.

Researchers also noted that Celsius still “purported” to own “around 48 percent.” In Tuesday’s statement, Vermont regulators issued a warning for anyone who might consider investing in it, writing, “There are online forums encouraging investors to participate in a ‘short squeeze’ of the Celsius token, CEL. These forums encourage people to purchase CEL tokens in order to drive up the price of the token, thereby hurting individuals who may hold a ‘short’ position in CEL.

“Celsius has not disclosed adequate or complete information to the public to enable investors to make informed purchases and sales of CEL,” they added. “Investors who purchase CEL tokens are taking a risk that those tokens will sharply decrease in value, or even become worthless, in the future. Concerted efforts to manipulate the price of CEL may also violate state and federal laws.”

They also seized the opportunity to take a parting shot at cryptocurrency more broadly.

“Vermont investors should be very wary of communications purporting to come from Celsius, especially if they suggest or request additional investments or payments,” they said. “The nature of cryptocurrency and the manner in which it is sold or exchanged lends itself to fraud, market manipulation and other criminal activity, including various types of scams.”