Attorney General James orders unregistered crypto lending platforms to cease operations in New York, announces additional investigations


Today’s announcement follows previous warnings about virtual currency
Platforms whose illegal activities will not be tolerated in New York

NEW YORK – New York Attorney General Letitia James today announced new efforts to protect New York investors, and commercial markets more generally, from exploitation by high-risk virtual currency systems. Virtual or “crypto” currency lending platforms are essentially interest-bearing accounts that offer investors a rate of return on the virtual currencies that are deposited with them. In New York, these lending platforms must register with the Attorney General’s Office (OAG) if they operate in the state or offer their products to New Yorkers. Today, Attorney General James ordered two of these lending platforms to immediately cease their unregistered and illegal activities in New York City and ordered three other platforms to immediately provide information about their activities and products.

“Cryptocurrency platforms have to follow the law, like everyone else, which is why we are now ordering two crypto companies to shut down and forcing three more to answer questions immediately,” said Attorney General James. “My office is responsible for ensuring that industry players do not take advantage of unsuspecting investors. We have already taken action against a number of crypto platforms and coins that have engaged in fraud or are operating illegally in New York City. Today’s actions build on that work and send the message that we will not hesitate to take whatever action is necessary against any business that thinks it is above the law.

The Martin law of New York sets out a long list of instruments which are declared to be transferable securities and therefore subject to its provisions: “all stocks, bonds, notes, proof of interest or debt or other transferable securities … orders, calls or related options, hereinafter referred to as securities or securities. As the courts have held for nearly a century, the Martin Act is remedial law, intended to protect the investing public, meaning that its provisions – including those that define the definition of a “title” – should be interpreted broadly. Indeed, these defined categories of instruments are not exhaustive; other instruments or arrangements can and have been considered securities under the law.

The nature and function of the most common virtual currency lending products or services clearly falls under one of the many categories of “security” under the Martin Law.

The virtual currency lending products at issue in today’s stocks promise a fixed or variable rate of return to investors and claim to deliver those returns by, among other things, trading with or further lending these virtual assets. The most common virtual currency loan products or services are therefore securities within the meaning of the Martin Law, including, in particular, those which accept virtual currencies in exchange for a rate of return. Therefore, entities offering such products from New York or to New Yorkers must be registered with the OAG as brokers, resellers or sellers, unless exempted.

In 2021, the OAG Investor Protection Office continued to modernize its registration operations and updated its commodity personnel registration forms to collect information regarding virtual currencies. In March 2021, the OAG specifically informed the industry that those who directly trade virtual currencies (such as trading platforms) must register with the Office of Investor Protection, unless exempted.

In the past, Attorney General James has not shied away from holding cryptocurrency trading platforms and token issuers to account. Last month, Attorney General James shut down cryptocurrency trading platform Coinseed, Inc. after filing a lawsuit against the company earlier this year.

On the same day last month, Attorney General James secured the recovery of nearly half a billion dollars illegally obtained from investors who financially supported GTV Media Group, Inc. and its parent company, Saraca Media Group, Inc. In addition to illegally selling stocks, the company was selling two digital instruments promoted as cryptocurrencies without registering in New York State.

In February, Attorney General James announced a deal with Bitfinex, Tether, and related entities that ended all of their business activities in New York State, imposed an $ 18.5 million penalty on companies, and increased transparency.


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