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Crypto platform settles with SEC, states for failing to register security offering

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Emerging Technology, Inside the Beltway, Nonbank Financial
Tuesday, February 13, 2024

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.

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