The North American Securities Administrators Association (NASAA) and the SEC have announced that a taskforce of state securities regulators and the US securities regulator has reached a $3m settlement with TradeStation Crypto, Inc. concerning its crypto interest-earning program.

In the past year, a multistate task force of eight state securities regulators, including California, Washington, Alabama, Mississippi, North Carolina, Ohio, South Carolina, and Wisconsin, coordinated with NASAA’s Enforcement Section Committee to conduct a comprehensive investigation into TradeStation’s crypto interest-earning program.

“This joint investigative effort is typical of how state regulators work every day to protect Main Street investors,” said Claire McHenry, NASAA President and Deputy Director of the Nebraska Department of Banking and Finance’s Bureau of Securities. “This settlement also demonstrates the value of state and federal authorities working together to benefit investors nationwide. We appreciate working with our counterparts at the SEC in reaching this settlement.”

Crypto interest-earning

TradeStation, a Florida corporation formed in 2018, provides crypto-asset-related financial services to retail and institutional customers in the United States, including investing and trading services.

From around August 2020 to June 2022, NASAA and the SEC say that TradeStation offered a crypto interest-earning program to United States investors. Under the program, investors could passively earn interest on crypto assets by loaning them to TradeStation, and TradeStation maintained total discretion over the revenue-generating activities used to earn returns for investors.

The company offered and promoted their crypto interest-earning program in the US via its website and various platforms without a license to do so, the SEC and NASAA said.  

TradeStation is alleged to have failed to register their businesses with the appropriate state regulators and comply with state requirements. As a result, investors were sold unregistered securities in violation of state laws and additionally did not receive information and disclosures necessary to understand the potential risks of TradeStation’s crypto interest-earning program, the settlement order states.

Each state gets a cut

The eight working group states were not alone in the settlement; 18 additional securities regulators were parties to it and agreed to the terms of the settlement. For each state participating in the settlement, TradeStation will pay a fine of $29,411.76 and cease offering, selling, or renewing its crypto interest-earning program until such activities are compliant with applicable state and federal securities laws.

NASAA noted in its press release about the settlement that TradeStation has repaid investors, including interest and earnings.