Exclusive-State securities regulators investigating Celsius accounts freeze

By Hannah Lang

WASHINGTON (Reuters) -State securities regulators in Alabama, Kentucky, New Jersey, Texas and Washington are investigating crypto lender Celsius Network's decision this week to suspend customer redemptions, Texas' director of enforcement Joseph Rotunda told Reuters on Thursday.

Officials met and began investigating the matter first thing Monday morning, Rotunda said, adding he considered the probe to be a "priority."

Celsius said that due to extreme market conditions, it was pausing withdrawals, swaps and transfers between accounts. The company said that doing so would put it "in a better position to honor, over time, its withdrawal obligations."

"I am very concerned that clients – including many retail investors – may need to immediately access their assets yet are unable to withdraw from their accounts. The inability to access their investment may result in significant financial consequences," he said.

Alabama Securities Commission Director Joseph Borg told Reuters that Celsius has been responsive to questions from the regulators, but that the investigation is in the initial stages.

Borg added that U.S. Securities and Exchange Commission has also been in communication with Celsius. The SEC declined to comment.

Celsius and CEO Alex Mashinsky did not immediately respond to a request for comment.

Rotunda said he and his team learned of the move by New Jersey-based Celsius to freeze user withdrawals from the company's blog post and announcement on Twitter (NYSE:TWTR) on Sunday night, which said the company needed to take action to "stabilize liquidity."

In September, regulators in Kentucky, New Jersey and Texas hit Celsius with a cease and desist order, arguing its interest-bearing products should be registered as a security.

Similar to a bank, Celsius gathers crypto deposits from retail customers and invests them in the equivalent of the wholesale crypto market. In return, customers are promised returns of up to 18% on their deposits.