TradeStation Crypto Fined $1.5M by SEC for Unregistered Crypto Asset Lending Product Offering

The U.S. Securities and Exchange Commission (SEC) has accused TradeStation Crypto, Inc. ("TradeStation") based in Florida of failure to register a crypto lending product, which allowed U.S. investors to deposit or buy crypto assets in a TradeStation account in exchange for the promise of interest payment by the company. As a result of settling the SEC's charges, TradeStation has agreed to pay a penalty of $1.5 million.

As per the SEC's order, TradeStation introduced the crypto lending product with an interest feature around August 2020. The company promoted 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's order determined that TradeStation sold and marketed the crypto lending product with the interest feature as a security. Since the product did not qualify for an exemption from registration, TradeStation was obligated to register its offer and sale, which it failed to do.

According to the SEC's order, TradeStation voluntarily ceased offering and selling the interest feature to investors on June 30, 2022. TradeStation had already announced its intention to discontinue all its crypto-related products and services in the U.S. market on February 22, 2024.

Stacy Bogert, Associate Director of Division of Enforcement at SEC, stated: "The SEC charged TradeStation with failure to register its crypto lending product before offering it to investors. 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."

Without accepting or denying the SEC's findings, TradeStation has agreed to pay the civil penalty as well as accept a cease-and-desist order that prohits the company from violating the registration provisions of the Securities Act of 1933. In separate actions, TradeStation has also agreed to pay fines of $1.5 million to settle comparable charges made by the North American Securities Administrators Association (NASAA).