The crypto trading platform TradeStation Crypto, Inc., agreed
to pay $1.5 million to settle charges with the Securities and Exchange
Commission (SEC) and multiple state securities organizations for failing to
register its interest-based product offering. The company offered to pay
interest to investors who deposited crypto assets on the TradeStation
platform.
The company agreed to consent orders with the SEC and the North
American Securities Administrators Association (NASAA), a task force of eight
state securities regulators co-led by California and Washington. The NASAA also
includes Alabama, Mississippi, North Carolina, Ohio, South Carolina and
Wisconsin.
TradeStation began offering and selling its crypto lending
product around August 2020, according to the SEC’s consent order. TradeStation’s
marketing messages told investors to, “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, according to the order.
“TradeStation did not file a registration statement with the
commission for the offers and sales of the interest feature, nor did its offers
and sales of the interest feature qualify for an exemption from registration
under the Securities Act,” the order states.
Section 5(a) of the Securities Act, according to the order, “prohibits,
unless a registration statement is in effect as to a security, any person,
directly or indirectly, from making use of any means or instruments of
transportation or communication in interstate commerce or of the mails to sell
such security through the use or medium of any prospectus or otherwise; or to
carry or cause to be carried through the mails or in interstate commerce, by
any means or instruments of transportation, any such security for the purpose
of sale or for delivery after sale.”
“The SEC charged TradeStation with failure to register its
crypto lending product before offering it to investors,” SEC Associate Director
of Enforcement Stacy Bogert said in a press release. “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.”
TradeStation agreed to the terms of the SEC’s consent order
without admitting or denying its findings. The terms include a cease-and-desist
order prohibiting the company from violating the registration provisions of the
Securities Act of 1933. TradeStation agreed to pay an additional $1.5 million
in fines to settle similar charges filed by the NASAA member state
organizations.
“The DFPI will always enforce our financial laws and will
continue to aggressively challenge unlawful investment activities involving
crypto assets, using all tools at our disposal to do so,” California Department
of Financial Protection and Innovation (DFPI) Commissioner Clothilde Hewlett
said in a separate release. “This effort includes collaborative investigation
and enforcement with state and federal partners and is reinforced by proactive
investor education.”
TradeStation voluntarily stopped offering and selling the
interest feature to investors in June 2022 and announced earlier this year its
intention to terminate all its crypto-related products and services in the U.S.
market on Feb. 22.