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New Jersey Regulator Issues Cease-and-Desist Order To Crypto Firm

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New Jersey Bureau of Securities (NJBS) issued a Summary Cease-and-Desist Order against a Jersey City-based financial services company. The action was brought to stop the sale of unregistered securities in the form of interest-earning cryptocurrency accounts that have raised at least $5 billion nationwide.

The order alleges violation of the Securities Law as unregistered securities offerings pose significant risk to investors because the issuers do not make the same types of disclosures that typically accompany registered offerings about the level of risk a particular investment entails.

Voyager Digital Ltd., Voyager Digital, LLC, and Voyager Digital Holdings, Inc. have allegedly been funding their income generating activities, including lending operations, digital asset staking, and proprietary trading, at least in part through the sale of unregistered securities in the form of cryptocurrency interest-earning accounts.

According the order, Voyager solicited investors to invest in the Voyager Earn Program Accounts by depositing certain eligible cryptocurrencies into the investors' Voyager account. Voyager then pooled these cryptocurrencies together to fund its various income generating activities, including lending operations, digital asset staking, proprietary trading, and investments in other cryptocurrency trading platforms, such as Celsius Network.

In exchange for investing in the Voyager Earn Program Accounts, investors are promised an attractive interest rate that is paid monthly in the same type of cryptocurrency as originally invested.

As of March 1, 2022, Voyager had approximately 1.53 million Voyager Earn Program Accounts representing approximately $5 billion in assets, of which approximately 52,800 were New Jersey-based accounts representing approximately $197 million in assets.

The Voyager Earn Program Accounts are not registered with the Bureau or any other securities regulatory authority, nor are they otherwise exempt from registration.

As they are unregistered, digital assets contained in Voyager Earn Program Accounts are not protected by the Securities Investor Protection Corp. (SIPC), insured by the Federal Deposit Insurance Corp. (FDIC), or insured by the National Credit Union Administration (NCUA).

The NJBS is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey.

This is the third action by NJBS to stop a New Jersey-based cryptocurrency firm from offering and selling unregistered securities in the form of interest-bearing accounts.

In July 2021, the Bureau announced a Summary Cease and Desist Order against BlockFi Lending, LLC (BlockFi), which raised at least $14.7 billion from the unlawful sale of unregistered securities worldwide. In February 2022, the Bureau entered a settlement with BlockFi, which was required to pay regulators a total of $100 million, including $943,396.22 to New Jersey.

In September 2021, the Bureau announced a Summary Cease and Desist Order against Celsius Network LLC, whose unlawful sale of unregistered securities had raised at least $14 billion nationwide.

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