California Regulator Issues Cease and Desist Order Against 11 Crypto Firms

Key Takeaways:

  • DFPI allege that the crypto firms offered and sold unqualified securities, and 10 of them made material misrepresentations and omissions to investors.
  • The regulator notes the crypto companies used investor funds to pay purported profits to other investors in the manner of a Ponzi scheme.

The California Department of Financial Protection and Innovation (DFPI) has now filed cease-and-desist orders against 11 leading crypto firms accusing them of misappropriating customer funds. 

The entities which are facing the cease and desist order include Pegasus, Elevate Pass, City Trade, Metafi Yielders, and Polinur ME Limited, among others.

“Each of the 11 entities allegedly offered/sold unqualified securities, and 10 of them also made material misrepresentations and omissions to investors,” the DFPI statement reads.

The regulator alleges that the entities are high-yield investment programs (HYIPs). DFPI points out that these crypto firms usually promise high returns with low risk/overly consistent returns, provide few details about the people running the HYIP, use vague language to describe how the HYIP makes money, facilitate deposits/withdrawals with crypto assets, offer referral bonuses, and further use social media to attract investors.

DFPI alleges that the 11 crypto firms used investor funds to pay purported profits to other investors using the “Ponzi scheme.”

“The entities promised to pay investors commissions if they recruited new investors and additional commissions if the investors that they recruited, in turn, recruited new investors. The referral programs achieved their desired effect, incentivizing investors to create and post content to social media websites, such as YouTube, to entice others to invest in these entities.”, the press release states.

DFPI, further in its announcement, goes on to say that the move is not only to protect consumers but also to ensure California remains the premier global location for responsible crypto asset companies to start and grow.

Earlier this week, California joined a group of states in suing leading crypto lender Nexo for offering unregistered securities in the form of accounts that pay interest for crypto deposits.

“These crypto interest accounts are securities and are subject to investor protections under the law, including adequate disclosure of the risk involved,” said Clothilde Hewlett, Commissioner of DFPI.

Clothilde Hewlett added that the department has taken “undertaken aggressive enforcement efforts” against unregistered interest-bearing crypto accounts.

Saniya Raahath
Saniya Raahath

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