On April 29, New York AG Letitia James announced an Assurance of Discontinuance with a cryptocurrency platform resolving allegations that the platform promoted a third-party crypto lending product in violation of the Martin Act and New York Executive Law § 63(12). The AG alleged that the platform advertised the lending product to users as a way to earn interest on digital assets, while failing to register and omitting material information about the product’s risks.
Specifically, the Assurance alleges that the platform:
- Offered unregistered securities. The lending agreements were alleged to be investment contracts, and the platform allegedly facilitated those transactions without required registration.
- Made misleading marketing statements. The platform allegedly promoted high returns and “comprehensive insurance” without adequately disclosing that the insurance did not cover investment losses.
- Omitted key risk information. The platform allegedly failed to disclose that investor assets were deployed into higher-risk lending arrangements.
The Assurance requires the platform to pay $5 million in monetary relief, distribute funds to eligible investors, and maintain a risk-based due diligence process for third-party partners.
Putting It Into Practice: This settlement underscores state regulators’ continued focus on crypto yield products, especially where platforms promote third-party offerings to their own customers. Market participants should review registration obligations, marketing disclosures, and partner diligence procedures before offering or advertising digital asset yield products.