TradeStation Crypto Charged by SEC for Unregistered Crypto Lending Product

According to Blockworks, the Securities and Exchange Commission (SEC) has charged TradeStation Crypto with the unregistered offer and sale of a crypto lending product. The SEC's order states that TradeStation voluntarily stopped offering and selling the interest feature to investors on June 30, 2022. The company announced earlier this year that it plans to terminate all its crypto-related products and services in the U.S. market on February 22, 2024. TradeStation did not admit or deny the regulator's claims but agreed to a cease and desist order and will pay $1.5 million to the SEC. Stacy Bogert, associate director of the SEC's Division of Enforcement, emphasized the importance of ensuring that investors benefit from the disclosure requirements provided by federal securities laws, regardless of the label applied to the offering. In addition to the SEC settlement, TradeStation will pay $1.5 million as part of a multi-state settlement according to a separate enforcement order. The task force involved eight states, including California, Mississippi, North Carolina, Ohio, and South Carolina. The press release stated that from August 2021 to June 2022, TradeStation offered the crypto interest-earning program to at least 142 New Jersey investors. The SEC alleged that TradeStation offered and sold a crypto lending product in 2020, which had an interest feature. The company marketed the interest feature as a way for investors to earn interest and 'Put your crypto assets to work for you.' TradeStation had complete discretion over how to deploy the assets to generate revenue to pay interest to investors. The order finds that TradeStation offered and sold the crypto lending product with the interest feature as a security, and since it did not qualify for a registration exemption, TradeStation was required to register its offer and sale but failed to do so. The North American Securities Administrators Association (NASAA) also cited the TradeStation product in the New Jersey press release. The task force found that investors passively earned interest on crypto assets by loaning them to TradeStation, which had total control over the revenue-generating activities used to earn returns. A TradeStation spokesperson told Blockworks that TradeStation Crypto does not comment on regulatory investigations and settlements.