Katherine Ross

CoinEx, a Hong Kong-based crypto trading platform, has agreed to pay out $1.7 million to the <a href="https://blockworks.co/tag/nyag">New York Attorney General</a> and cease operations in New York.&nbsp;



Of the $1.7 million sum, $1.1 million will go toward refunds for nearly 4,700 New Yorkers. The other $600,000 will go to pay state penalties.&nbsp;



The exchange is <a href="https://blockworks.co/tag/tether">Tether</a>-based, and predominantly trades bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) and <a href="https://blockworks.co/price/usdt">USDT</a>, with no USD pairings.&nbsp;



The New York Attorney General’s office <a href="https://ag.ny.gov/press-release/2023/attorney-general-james-sues-cryptocurrency-platform-failing-register-new-york">sued</a> CoinEx back in February, alleging that it violated the Martin Act by not registering with the state.&nbsp;



The <a href="https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?referer=&amp;httpsredir=1&amp;article=1010&amp;context=jbtl">Martin</a> Act — established in 1921 — makes it illegal for anyone offering to sell or selling securities as a dealer, broker or salesman without registration.&nbsp;



Because CoinEx claimed to be an exchange and wasn’t registered with either the Commodities Futures Trading Commission or the SEC, it was in violation of the Act, the New York Attorney General’s office <a href="https://ag.ny.gov/search?term=martin+act&amp;sort_by=relevance&amp;sort_order=DESC">claims</a>.



“Today’s agreement should serve as a warning to crypto companies that there are hefty consequences for ignoring New York’s laws. My office will continue to crack down on crypto companies that brazenly disregard the law, mislead investors, and put New Yorkers at risk,” NY Attorney General <a href="https://blockworks.co/tag/Letitia-James">Letitia James</a> said in the press release.&nbsp;



The CoinEx settlement is the latest case in a string of crypto-related suits and settlements — <a href="https://blockworks.co/news/crypto-market-ether-security-nyag">including one against KuCoin</a> — brought forth by the New York Attorney General’s office. The attorney general has <a href="https://blockworks.co/news/crypto-fraud-needs-order">also expressed plans to bring a bill to state legislators</a> which would require crypto firms to complete audits, submit financial statements and boost fraud protection.



“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” James said in May.



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Hong Kong-based CoinEx to exit New York, pay $1.7M in NYAG settlement

Casey Wagner

The conflict around state versus federal cryptocurrency regulation heats up with a new effort in New York to further establish itself as a policy pioneer.&nbsp;



New York State Attorney General <a href="https://blockworks.co/tag/letitia-james">Letitia James</a> plans to bring a bill to state legislators next month that would require crypto companies to complete audits, submit financial statements and increase fraud protection.&nbsp;



“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” James wrote in a statement Friday.&nbsp;



The proposed bill, known as the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, also includes new rules around custody and lending; increasing scrutiny around which companies are allowed to hold assets and facilitate leverage trading.&nbsp;



The news comes as lawmakers across the country continue to disagree over how to oversee the growing crypto industry.&nbsp;



New York leaders have maintained their approach to cryptocurrency regulation is one of the more advanced in the US. The state rolled out its <a href="https://blockworks.co/news/ny-authorities-more-fees-crypto-companies">BitLicense</a> in 2015, a policy that prompted some companies to cease operating in the state. Since then, other states, including Illinois and New Jersey, have expressed interest in passing similar regulations based on New York’s framework.&nbsp;&nbsp;



Rep. Ritchie Torres, D-N.Y., said he would not be inclined to support any legislation that undermined New York’s current stablecoin regulatory policy during an <a href="https://blockworks.co/news/house-grapples-with-stablecoins">April stablecoin hearing in the House</a>.&nbsp;



Some New York state regulators have taken what the industry sees as a slightly more crypto-friendly approach.&nbsp;



During April’s hearing, witness Adrienne A. Harris, superintendent of the New York State Department of Financial Services, countered a popular narrative that crypto is to blame for recent banking collapses.&nbsp;



“It is a misnomer that the failure of Signature Bank was related to crypto,” Harris said during the hearing, in response to a question from Rep. Maxine Waters, D-Cali., about crypto’s role in the banking crisis.&nbsp;



Stablecoins, which have long been speculated to be the first area of policy congressional leaders will tackle with digital assets, are also a concern in James’ new proposal.&nbsp;



The CRPTO Act would limit companies from being able to use the term ‘stablecoin;’ only allowing assets fully backed dollar-for-dollar to be labeled as such.



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Crypto’s ‘Rampant Fraud and Dysfunction’ Needs ‘Law and Order,’ NY AG Says

Ben Strack

New York’s attorney general is suing the former CEO of bankrupt crypto lender Celsius Network, alleging that the executive defrauded hundreds of thousands of investors out of billions of dollars in crypto.



The civil <a href="https://ag.ny.gov/sites/default/files/mashinsky_complaint.pdf" target="_blank" rel="noreferrer noopener">lawsuit,</a> filed by New York Attorney General Letitia James Thursday, alleges that ex-CEO Alex Mashinsky made false and misleading statements about Celsius’ safety to encourage investors to deposit digital assets onto the platform. 



“As announced on September 27, 2022, Alex Mashinsky is no longer employed by Celsius and is not involved in the management of the company,” a Celsius spokesperson told Blockworks.



Mashinsky also failed to register as a salesperson for Celsius and as a securities and commodities dealer, the lawsuit states.&nbsp;



More than 26,000 New Yorkers were impacted, James said. The suit seeks to ban Mashinsky from doing business in New York and require him to pay damages, restitution and disgorgement.



“The law is clear that making false and unsubstantiated promises and misleading investors is illegal,” James said in a statement. “My office will stay vigilant and ensure that bad actors trying to take advantage of New York investors are held accountable.”



Mashinsky could not be immediately reached for comment.



The suit follows Celsius initiating <a href="https://blockworks.co/news/celsius-to-file-for-bankruptcy-imminently-report">bankruptcy proceedings</a> in July, about one month after it halted <a href="https://blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers">withdrawals</a>, citing “extreme market conditions.”



A federal bankruptcy judge <a href="https://blockworks.co/news/not-enough-value-left-to-repay-celsius-customers">ruled</a> Wednesday that Celsius owns the tokens customers deposited into its interest-bearing accounts before filing for bankruptcy. The crypto was worth $4.2 billion in July 2022, and the firm had about 600,000 accounts in highest yield-bearing crypto products as it went bust.



This is not the first time James has pursued legal action against players in the crypto industry. She <a href="https://blockworks.co/news/new-york-attorney-general-issues-call-for-crypto-industry-whistleblowers">called on</a> New York crypto investors in August to contact the Investor Protection Bureau if they had been “deceived” or affected by the market crash.



A <a href="https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal" target="_blank" rel="noreferrer noopener">settlement</a> with Tether in February 2021 ousted the leading stablecoin from New York. The attorney general also sued crypto lender Nexo, a long-time Celsius rival, last September. James claimed Nexo failed to register with the state as securities and commodities brokers, and for lying to investors about its registration status.



A few months prior, in June, James reached a nearly $1 million <a href="https://ag.ny.gov/sites/default/files/2022.06.07_blockfi_nyoag_aod.pdf" target="_blank" rel="noreferrer noopener">settlement</a> with BlockFi Lending for offering unregistered securities.



Updated Jan. 5, 2022 at 1:06 pm ET: Added comment from Celsius spokesperson.



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Celsius Founder Mashinsky Defrauded Thousands for Billions in Crypto: NYAG

Sam Reynolds

<div id="highlights-block_616d936ce3602" class="highlights">
 <ul>
 <li>New York Attorney General Letitia James today announced a campaign against the crypto lending industry under the auspices of consumer protection</li>
 <li>Crypto lending protocols Nexo and Celsius have received requests for information from the NYAG — but not subpoenas</li>
 </ul>
 
</div>



Crypto lending protocols, which pay users an above-market interest rate for their digital asset deposits, have been banned in New York, the state’s Attorney General announced Monday, and an investigation is underway into the operations of two of the largest platforms.&nbsp;



“Cryptocurrency platforms must follow the law, just like everyone else, which is why we are now directing two crypto companies to shut down and forcing three more to answer questions immediately,” said Attorney General James in a press release. “My office is responsible for ensuring industry players do not take advantage of unsuspecting investors.”



Attached to the press release, the NYAG posted two of the letters sent requesting more information. While part of the content of the letters was redacted, the file names on the NYAG’s website revealed they were sent to Nexo and Celsius.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="827" height="363" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg" alt="NYAG redacted letter" class="wp-image-9507" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=827 827w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Microsoft_Word_-_Celsius_Letter_10_14_21.jpg?w=80 80w" sizes="(max-width: 827px) 100vw, 827px" /><figcaption>The NYAG later <a href="https://ag.ny.gov/sites/default/files/informational_letter_redacted.pdf" target="_blank" rel="noreferrer noopener">corrected</a> the oversight</figcaption></figure>



As of now, these letters are simply requests for information and are not subpoenas thus the companies are under no obligation to respond.



Among the information requested are &#8220;all contracts, agreements, or other communications with Tether Limited, or other affiliated persons or entities,&#8221; and &#8220;a list of transactions by or through your platform or service that, in whole or in part, include USDT, including all relevant transaction details.&#8221;



Tether has loaned Celsius $1 billion dollars secured by crypto collateral, Blockworks <a href="https://cms.blockworks.co/celsius-reportedly-borrowed-1b-from-tether-with-bitcoin-as-collateral/" target="_blank" rel="noreferrer noopener">previously reported</a>.



The NYAG did not specify if this ban and investigation is a result of consumer complaints against the mentioned companies.&nbsp;



This announcement from the NYAG <a href="https://cms.blockworks.co/celsius-valued-at-3-25b-after-400m-raise-amid-regulatory-headwinds/">comes days after</a> Celsius closed a $400 million round valuing the company at $3.25 billion. The round was led by Caisse de dépôt et placement du Québec (CDPQ), the province of Quebec’s pension fund, and one of the largest institutional investors in the country with nearly $323 billion assets under management.&nbsp;Celsius has nearly $20 billion in assets under management. In a previous interview with Blockworks, its CEO Alex Mashinsky said that, “the 8.8% we pay on stablecoins is the real value of the US dollar. It’s not 0.1%, which is what JP Morgan or Wells Fargo or other people tell you that you should be earning for your dollar.”



This is not the first time Celsius has faced state scrutiny. Earlier this year <a href="https://cms.blockworks.co/celsius-valued-at-3-25b-after-400m-raise-amid-regulatory-headwinds/" target="_blank" rel="noreferrer noopener">the company received</a> Cease and Desist Orders from authorities in Texas and New Jersey. Another prominent centralized lending platform, BlockFi, <a href="https://cms.blockworks.co/regulators-are-coming-for-crypto-heres-how-firms-are-reacting/" target="_blank" rel="noreferrer noopener">has faced similar questions</a> from regulators.



Celsius did not respond to a request for comment by press time. Its token CEL is down 7%, according to data from <a href="https://www.coingecko.com/en/coins/celsius-network-token">CoinGecko</a>.



Nexo <a href="https://twitter.com/NexoFinance/status/1450124848173355017" target="_blank" rel="noreferrer noopener">has denied</a> serving New York State entirely. The Nexo token NEXO is trading <a href="https://www.coingecko.com/en/coins/nexo" target="_blank" rel="noreferrer noopener">-2.8% lower</a>.