California DFPI orders two cryptoasset companies to cease operations | Orrick, Herrington & Sutcliffe LLP

On June 5, the California DFPI issued two cease and desist orders against securities companies that allegedly offered nonqualified securities under the California Corporate Securities Act (CSL). The first order targeted a company incorporated in the United Kingdom, with DFPI alleging that the company offered and sold unauthorized securities to Californians through its website. Since 2023, these so-called securities were interest-bearing accounts in which the company promised to pay interest on deposited assets that would be deployed into decentralized financial liquidity pools. According to the order, these securities were presented as investment contracts “which were neither qualified nor exempt from the qualification requirement” of the state CSL. The second order targeted another crypto-asset company, in which the company offered interest-bearing accounts on crypto assets from 2023 that were neither qualified nor exempt from the qualification requirement under the CSL, and the DFPI had not authorized the company to sell securities in California. . Both orders required companies to refrain from selling securities in California until CSL requirements were met.