Celsius co-founder and former CEO Alex Mashinksy said Celsius Earn’s accounts are not securities in his defense of the New York’s attorney general charges against him, according to a May 2 court filing.
New York attorney general classifies Celsius Earn accounts as securities
In its filing, New York’s attorney general Letitia James argued that Celsius Earn’s account constituted securities under the Martin Act.
According to the regulator, these accounts were securities because “investors deposited their cryptocurrency assets with Celsius with the expectation of receiving promised yields from Celsius’s efforts in deploying investors’ pooled assets.”
Mashinsky argues against it
However, Mashinsky countered that the bankrupt lender’s Earn product could not be classified as securities under the Martin Act or Howey’s test. According to him, New York’s allegations “merely parrot the three Howey prongs.”
Mashinsky argued that the complaints failed to plead a common enterprise, adding that “Earn Account holders’ fortunes were based on a predetermined rate and were not dependent on Celsius’s revenue generation.”
The former CEO further noted that the account holders received the same guaranteed interest payment on their account — irrespective of Celsius’s success or failure to deploy the assets.
To back his claim, Mashinsky cited various legal precedents where the court ruled that no “investment contract” existed when a predetermined interest rate was involved.
Celsius Earn’s account allowed investors to deposit their digital assets on the platform to earn up to 18% interest annually. New York’s attorney general said the program was the bankrupt’s lender’s “flagship product.”
SEC targeting crypto firms offering interest-bearing products
Under Chair Gary Gensler, the U.S. Securities and Exchange Commission (SEC) has targeted more crypto firms offering interest-bearing products.
The financial regulator filed charges against Gemini and Genesis over their defunct Earn program and fined Kraken $30 million for its staking product.
The SEC also issued a Wells Notice to Coinbase and fined bankrupt lender BlockFi $100 million over its Interest accounts.
In February, the Commission issued an investor alert on crypto interest-bearing accounts. According to the financial regulator, crypto companies offering this product do not provide investors the same protections as banks or credit unions — adding that the digital assets sent to these firms are uninsured.
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