Minnesota Dept. of Commerce issues ‘consumer alert’ after recent crypto bankruptcies

(ABC 6 News) – The Minnesota Department of Commerce issued a ‘Consumer Alert’ on Monday cautioning potential investors interested in crypto-interest accounts after the recent bankruptcy filing by the giant cryptocurrency exchange, FTX.

The FTX bankruptcy follows two other filings in July by two other cryptocurrency companies, Celsius Network and Voyager Digital.

The department says that companies offering interest-bearing crypto accounts are not governed by the same rules and protections as banks and credit unions. Many of the products and services offered by cryptocurrency companies are similar to traditional financial services offered by banks and brokerages, but without any of the regulatory safeguards provided by registered firms and products.

It’s being reported that $1 billion in client funds invested through FTX appear to be missing and that hackers may have stolen $370 million. Celsius and Voyager both froze transactions in the days before their bankruptcy filings, leaving many customers unable to access their accounts. Celsius reported it had more than 1 million customers and was managing more than $20 billion in assets. Voyager reported 3.5 million customers and $5.8 billion under management. FTX was recently valued at $32 billion.

The Department of Commerce regulates firms that sell securities in Minnesota as well as the securities themselves. FTX was founded in the Bahamas but has a U.S. arm that’s registered as a broker dealer in Minnesota. Celsius and Voyager were not registered in the state.

“Requiring crypto firms and other securities dealers to register helps to ensure that investors receive all of the information they need to make decisions,” said Max Zappia, Deputy Commissioner for Financial Institutions. “That includes information about the risks that companies may be taking when customers hand over control of their crypto assets to these platforms.

“We will continue to investigate whether other crypto-interest account providers are offering securities that legally should be registered or violating other laws under our jurisdiction. At the same time, we strongly advise Minnesotans who are considering investing in crypto to consider their tolerance for risk and to be aware of the potential for financial losses.”

In February 2022, Minnesota and 31 other states, along with the U.S. Securities and Exchange Commission, reached a settlement with another New Jersey crypto company, BlockFi, for offering accounts that met the legal definition for securities but were not registered as securities. Under the settlement, BlockFi has begun paying the state of Minnesota $940,000 in installments. But in the wake of FTX’s collapse, it’s being reported that BlockFi also has filed for bankruptcy.

Minnesota investors with questions or concerns about their own investment accounts, for any reason, can contact Commerce at consumer.protection@state.mn.us or call 651-539-1637. There is also the option to file a complaint using the online form at mn.gov/commerce/consumers/file-a-complaint/.

To learn more, visit the Minnesota Department of Commerce website, HERE.