TradeStation Crypto, a subsidiary of TradeStation Group, has agreed to pay $3 million to settle charges from the U.S. Securities and Exchange Commission (SEC) and eight state regulators for offering and selling an unregistered crypto lending product with an interest feature.
According to the SEC’s order, TradeStation Crypto marketed the interest feature as a way for investors to earn interest and “Put your crypto assets to work for you”. The order finds that the platform had complete discretion over how to use the assets to generate revenue to pay interest to investors.
The order also finds that TradeStation Crypto offered and sold the crypto lending product with the interest feature as a security, and failed to register its offer and sale as required by the federal securities laws. The SEC charged the crypto platform with failure to register its crypto lending product before offering it to investors.
This case highlights the importance of ensuring that investors benefit from the disclosure requirements provided by the federal securities laws, regardless of the label applied to the offering, said Stacy Bogert, associate director of the SEC’s Division of Enforcement.
TradeStation Crypto did not admit or deny the SEC’s findings, but agreed to a cease and desist order and to pay a civil penalty of $1.5 million. The company also voluntarily stopped offering and selling the interest feature to investors on June 30, 2022. The platform announced earlier this year that it intends to terminate all its crypto-related products and services in the U.S. market on February 22, 2024.
TradeStation Crypto Also Settles With Eight State Regulators
In addition to the SEC settlement, TradeStation Crypto also agreed to pay $1.5 million as part of a multi-state settlement with the North American Securities Administrators Association (NASAA) Crypto Enforcement Task Force. The task force comprised eight states: California, Mississippi, New Jersey, North Carolina, Ohio, South Carolina, Texas, and Vermont.
The task force found that TradeStation Crypto offered the crypto interest-earning program to investors in their jurisdictions without proper registration or exemption. The task force also found that investors passively earned interest on crypto assets by loaning them to TradeStation Crypto, which had total control over the revenue-generating activities used to earn returns.
TradeStation Crypto’s unregistered offer and sale of a crypto lending product with an interest feature violated state securities laws and put investors at risk, […] This settlement demonstrates the effectiveness of coordinated state enforcement actions to protect investors from harm, said Christopher Gerold, president of NASAA and chief of the New Jersey Bureau of Securities.
TradeStation Crypto cooperated with the task force’s investigation and agreed to cease and desist from further violations of state securities laws. The platform Crypto also agreed to provide restitution to affected investors and to implement compliance measures to prevent future violations.
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