TradeStation Crypto, a prominent player in the cryptocurrency market, is currently under scrutiny by the U.S. Securities and Exchange Commission (SEC). The SEC has accused the firm of operating a crypto lending product without the necessary securities license.
The SEC’s contention is that TradeStation Crypto did not fulfill the prerequisites for a registration exemption, thereby making it liable for a substantial penalty. The company is now facing severe fines. The platform had been promoting to its customers the opportunity for their crypto assets to accrue interest. However, it was revealed that the platform maintained exclusive control over the use of these assets for income generation.
The firm had been marketing the interest feature as a means for investors to earn interest and ‘make your crypto assets work for you.’ The platform had absolute discretion over the deployment of the assets to generate revenue to pay interest to investors.
The SEC has imposed a penalty of $1.5 million on TradeStation, in addition to a further $1.5 million fine imposed by state regulators. It’s crucial to note that this settlement agreement does not imply an admission of the SEC’s findings by TradeStation.
The SEC has also issued a cease-and-desist order against TradeStation Crypto. Despite this, the firm openly states on its website that it does not hold licenses from either the SEC or the Commodities Futures and Trading Commission (CFTC).
The SEC has been increasingly vigilant in recent times, cracking down on crypto firms for offering unregistered securities.
In July 2023, the SEC targeted Quantstamp, a smart contract auditing firm, for raising $28 million through an Initial Coin Offering (ICO) of unregistered securities. In August 2023, the SEC charged Impact Theory, a Los Angeles-based media and entertainment company, with conducting an unregistered offering of crypto asset securities. This marked the first enforcement action of its kind against NFTs.
Impact Theory had reportedly lured investors with the promise of profits if the company succeeded in ‘building the next Disney.’ This raises legal issues, as per the Howey Test, which defines the ‘expectation of profit’ and the ‘efforts of others’ as key characteristics of a security. Impact Theory seems to have facilitated such interpretations with its promotion of NFTs.