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This Crypto Firm Faces a $3M Fine for Selling Digital Assets Without License

2 mins
Updated by Kyle Baird
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In Brief

  • SEC takes action against TradeStation Crypto for operating unlicensed crypto lending, facing hefty fines.
  • TradeStation marketed interest earnings on crypto assets, retaining full control over asset utilization.
  • SEC imposes $1.5 million penalty on TradeStation, issues cease-and-desist order amidst crackdown on unregistered crypto securities.
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The United States Securities and Exchange Commission (SEC) has filed charges against TradeStation Crypto for reportedly operating a crypto lending product without possessing an appropriate securities license.

The SEC argues that TradeStation Crypto failed to meet the requirements for a registration exemption, consequently exposing it to a significant fine.

TradeStation Crypto Faces Hefty Fines

A recent statement reveals that the platform advertised to customers the potential for their crypto assets to earn interest. However, it was disclosed that the platform retained sole control over the utilization of these assets to generate income.

“TradeStation marketed the interest feature as a way for investors to earn interest and ‘Put your crypto assets to work for you,’ and TradeStation had complete discretion over how to deploy the assets to generate revenue to pay interest to investors.”

The SEC imposed a $1.5 million penalty on TradeStation, alongside an additional $1.5 million fine levied by state regulators. However, it’s important to note that the settlement agreement does not mean TradeStation has admitted to the SEC’s findings.

John Bartleman, President and CEO of TradeStation Group. Source: TradeStation
John Bartleman, President and CEO of TradeStation Group. Source: TradeStation

Furthermore, the SEC issued a cease-and-desist order against TradeStation Crypto.

Read more: 11 Best Altcoin Exchanges for Crypto Trading in January 2024

However, the firm explicitly declares on its website that it lacks licensing from the SEC or the Commodities Futures and Trading Commission (CFTC).

The SEC has been clamping down on crypto firms for offering unregistered securities in recent times.

In July 2023, the SEC targeted smart contract auditing firm Quantstamp for raising $28 million through an Initial Coin Offering (ICO) of unregistered securities.

In August 2023, the SEC charged Los Angeles-based media and entertainment company Impact Theory with conducting an unregistered offering of crypto asset securities. The action was the first enforcement action of its kind against NFTs.

BeInCrypto reported that the firm reportedly enticed investors by promising them profits if the company achieved its objective of “building the next Disney.”

Read more: Top 7 Crypto Exchanges With the Lowest Spreads in 2023

This poses legal concerns, according to the Howey Test. This outlines that key traits of a security include the “expectation of profit” and the “efforts of others.”

Impact Theory appeared to have made such interpretations markedly easier with its hype of NFTs.

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Ciaran Lyons
Ciaran is a cryptocurrency journalist based in Sydney, Australia. He particularly enjoys writing about CBDC developments and the practical implementations of cryptocurrency in real-world scenarios. He has also appeared across major television networks in Australia including Channel Ten, Channel Nine and SBS TV. Prior to his foray into cryptocurrency, Ciaran worked as a presenter on national radio station Triple J.
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