TradeStation Crypto Inc. Consent Order for Securities Violations

CONFIDENTIALSTATE OF MICHIGANDEPARTMENT OF LICENSING AND REGULATORY AFFAIRSCORPORATIONS, SECURITIES, AND COMMERCIAL LICENSING BUREAUIN THE MATTER OF DETERMININGWhether there has been a violation of theMichigan Uniform Securities Act by:TRADESTATION CRYPTO, INC.,Respondent.ENF-24-020022CONSENT ORDERINTRODUCTIONTradeStation Crypto, Inc. (hereinafter “TCI”) is part of a group of companies that engagein financial services;TCI has offered digital asset trading accounts to clients to purchase and sell digital assets;From approximately August 2020 until June 30, 2022, TCI’s digital asset trading accountshad a feature that accrued and paid interest to customers on certain digital asset balances in theiraccounts (the “Interest Feature”);State securities regulators, as part of a North American Securities AdministratorsAssociation (“NASAA”) Working Group that includes regulators from the states of Alabama,California, Mississippi, North Carolina, Ohio, South Carolina, Washington and Wisconsin (the“NASAA Working Group”), have conducted an investigation into whether the Interest Featureinvolved the offer and sale of unregistered securities by TCI to retail investors, among otherthings; andWithout admitting or denying any findings of fact or conclusions of law, TCI has reachedan agreement with the NASAA Working Group to resolve the investigation with respect to the 47states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands (collectively, the“51 Jurisdictions”) as follows:

TCI has advised the NASAA Working Group of its agreement to resolve the securitiesinvestigation pursuant to the terms specified in this Consent Order (the “Order”) and pursuant tothe multistate resolution recommended by the NASAA Working Group;TCI shall cease and desist offering, selling, or renewing the Interest Feature or any securitythat is not registered, qualified, or exempt to new clients in the 51 Jurisdictions, unless and untilthe Interest Feature or other securities are registered, qualified, or otherwise exempt;TCI amended and updated the terms of service, and any other terms or conditions of TCI’srelationship with residents of the 51 Jurisdictions, to reflect that such residents were the title,beneficial, and legal owners of all assets held in their digital asset trading accounts with TCI;TCI shall pay up to a total of one million five hundred thousand dollars ($1,500,000) insettlement payments divided equally among the 51 Jurisdictions and paid to each of the 51Jurisdictions that enter into a consent order pursuant to the terms of TCI’s agreement with theNASAA Working Group;TCI admits to the jurisdiction of the State of Michigan Department of Licensing andRegulatory Affairs, Corporations, Securities, and Commercial Licensing Bureau (“Bureau”) andits director, Linda Clegg (“Administrator”) in this matter;TCI elects to permanently waive any right to a hearing and appeal under MCL 451.2604,with respect to the entry of this Order; andSolely for the purpose of terminating the NASAA Working Group’s securitiesinvestigation and in settlement of the issues contained in this Order, TCI, without admitting ordenying the findings of fact or conclusions of law contained herein, consents to the entry of thisOrder. Notwithstanding the foregoing, TCI will admit to the findings of fact and conclusions oflaw solely for the purposes of exceptions to discharge in bankruptcy proceedings under any

jurisdiction, including the proceedings set forth in Sections 523 and 1192 of the Bankruptcy Code,11 U.S.C. §§ 523; 1192 (1978).NOW, THEREFORE, the Administrator of the Michigan Uniform Securities Act, 2008PA 551, as amended, MCL 451.2101 et seq. (“the Act”), hereby enters this Order:I. FINDINGS OF FACT1. The Bureau has jurisdiction over this matter pursuant to MCL 451.2301 and MCL451.2610(1).2. TCI is a Florida corporation that was formed in June 2018 and from November2019 until February 22, 2024 was in the business of providing online digital asset trading accountsto self-directed retail and institutional investors and traders for the purpose of buying, selling,trading, and holding certain digital assets. At the time that TCI discontinued its services, TCIsupported trading in Bitcoin (BTC), Ether (ETH) and USD Coin (USDC).3. TCI is a subsidiary of TradeStation Group, Inc., which is headquartered inPlantation, Florida. Since 2011, TradeStation Group, Inc. has been a wholly-owned subsidiary ofMonex Group, Inc. (“Monex”), a publicly traded Japanese corporation listed on the Tokyo StockExchange. TradeStation Group, Inc. is also the parent company of TradeStation Securities, Inc.,and TradeStation Technologies, Inc. which also have their principal place of business in Plantation,Florida.4. TCI is a registered Money Transmitter Licensee with the Michigan Department ofInsurance and Financial Services.5. These affiliates, specifically TCI, TradeStation Securities, Inc., and TradeStationTechnologies, Inc., all used brand messaging under the “TradeStation” trademark to advertise theirrespective platforms and services.

The Offer and Sale of Securities in Michigan and Nationwide6. TCI began offering its digital asset trading accounts in or around November2019 to Michigan residents. From August 2020 to June 30, 2022 (the “Offering Period”), TCIoffered the Interest Feature to at least 300 Michigan investors. Through the Interest Feature,TCI paid interest to customers who held digital asset balances in their TCI digital asset tradingaccounts. To pay the interest, TCI generated revenue through lending both firm-owned andcustomer-owned digital assets to institutional borrowers, from commissions earned by TCIcustomer trading activity in their digital asset trading accounts, and from capital that wascontributed to TCI in connection with the start-up of its business operations. On June 30, 2022,at the end of the Offering Period, there were 354 active Michigan digital asset trading accountswith TCI, collectively valued at over $948,079.20 USD. Nationally, at the end of the OfferingPeriod, there were a total of 11,958 active digital asset trading accounts with TCI, with assetsunder custody totaling $98,214,155.40 USD.TCI’s Interest Feature7. During the Offering Period, TCI advertised that customers could “actively tradeand earn interest on eligible crypto assets simultaneously.” TCI described the Interest Featureas “passive income.” TCI advertised that customers could earn up to 6 percent interest oneligible digital assets that customers held in digital asset trading accounts with TCI. TCI paidinterest on several types of digital assets, including Bitcoin, Ether, Litecoin, Bitcoin Cash, andUSDC Stablecoin.8. TCI offered its digital asset trading accounts to the general public through theTradeStation website (www.TradeStation.com). The website supported TradeStation

Securities, Inc., TradeStation Technologies, Inc. and TCI. TCI also offered a mobile version ofits web application for trading digital assets.9. TCI promoted the Interest Feature in internet ads that would appear in searchengine results based on certain terms searched by customers. TCI promoted the InterestFeature by advertising, for example: “Automatically Earn Interest on Eligible Crypto Balanceswith No Limits or Lockups,” “Easily Customize the Trading Interface, Analyze Prices & KeepTrack of Interest Income,” “We Put the Power in Your Hands to Buy, Sell, Invest, and EarnCryptocurrencies,” and “Join the New Digital Economy with TradeStation Crypto to Learn,Invest, and Earn Crypto.”10. TCI allowed eligible customers to apply for a digital asset trading account byutilizing a unified TradeStation online account opening process (the “AOP”) that allowedprospective customers to select and apply for the desired account type. As part of the AOP,prospective customers provided personal information for the purpose of Know Your Customer(KYC) and Anti Money Laundering (AML) checks. Socure, a third-party identity verificationprovider, then verified customer-provided information against Socure-sourced information,including public records.11. TCI set interest rates and credited TCI customer accounts with earned interest ona monthly basis. According to TCI, the interest “accumulates daily and is paid and compoundsmonthly directly in your TradeStation Crypto account.” TCI based interest rates on a numberof factors, including, but not limited to, the rates TCI earned from borrowers, economic, andcompetitive factors.12. TCI commingled customers’ like-kind digital assets together andrehypothecated, or used, the customers’ digital assets to lend to “trusted institutional or

corporate borrowers,” such as BlockFi Lending LLC and Genesis Global Capital, LLC—bothof which have since filed for bankruptcy protection. TCI represented that notwithstanding, noborrower failed to return all digital assets lent by TCI to them, and none of TCI’s customerslost money from the Interest Feature.13. TCI represented that it implemented various risk mitigation strategies towardsits lending activities and that all loans made by it were fully secured. TCI set the amount ofcrypto assets that it was willing to lend to individual borrowers depending on the borrower’scredit profile. TCI further represented that it utilized its “automated risk management system”to “monitor positions 24/7” and maintained a reserve balance to fulfill TCI customerwithdrawal demands. Further, TCI claimed to maintain an internal risk committee to evaluate,among other things, credit and market risks that may affect its business. Customer accountbalances with TCI were not SIPC or FDIC insured.14. During the account opening process, TCI required customers to agree to therehypothecation of their digital assets when the customer accepted the TCI Terms, includingthe Customer Account Agreement, during account set-up. Specifically, TCI required thatcustomers agree that TCI may hold the digital assets in TCI’s name, that their digital assetscould be commingled with other customers’ digital assets, and that TCI could “pledge,repledge, hypothecate, rehypothecate, loan or invest” the digital assets. Further, the agreementsprovided that TCI was under no obligation to share with its customers any of the interestrevenue generated by TCI’s lending arrangements.15. Customer deposits into TCI’s digital asset trading accounts during the periodwhen the Interest Feature was offered were passive investments. TCI alone determined howcustomer assets were deployed; TCI customers had no control over how their assets were

invested. TCI required that customers give up certain rights to their assets—specifically, thatcustomers agreed to allow TCI to “pledge, repledge, hypothecate, rehypothecate, loan orinvest” digital assets.16. On or about June 30, 2022, TCI discontinued the Interest Feature and ceased alllending activities of customer assets.Failure to Comply with Registration Requirements17. During the Offering Period, TCI’s offer and sale of securities in the form of theInterest Feature was not offered or sold pursuant to an exemption or exception from registration.18. During the Offering Period, TCI offered and sold securities in Michigan that wereunregistered or did not meet an exemption for registration as required by MCL 451.2301.II. CONCLUSIONS OF LAW19. The offer and/or sale of the Interest Feature within digital assets trading accountsmaintained by customers as described above constitutes the offer and/or sale of a security asdefined in MCL 451.2102c(c).20. During the Offering Period, TCI’s offer and sale of securities in Michigan thatwere unregistered, or did not meet an exemption for registration, violated MCL 451.2301.III. ORDERBased on the Findings of Facts, Conclusions of Law, and TCI’s consent to the entry ofthis Order, IT IS HEREBY ORDERED:21. This Order concludes the securities investigation by the Bureau with respect toTCI’s Interest Feature and resolves any other securities action the Bureau could commenceagainst TCI and its affiliates concerning the Findings of Fact and Conclusions of Law, including

as it relates to the offer and sale of the Interest Feature without registration, qualification, orotherwise complying with an exemption.22. This Order is entered into solely for the purpose of resolving the referenced multi-state securities investigation with respect to the Interest Feature and is not intended to be used forany other purpose. Other than the obligations and provisions set forth herein, this Order does notlimit or create liability for TCI nor limit or create defenses for TCI to any claims.23. This Order is not intended to subject any Covered Person to any disqualificationsunder the laws of the United States, any state, the District of Columbia, Puerto Rico, Guam, orthe U.S. Virgin Islands, or under the rules or regulations of any securities or commoditiesregulator or self-regulatory organization, including, without limitation, any disqualification fromrelying upon the state or federal registration exemptions or safe harbor provisions. “CoveredPersons” means TCI, all of its parent companies, and all of its affiliates and their current orformer officers, directors, employees, contractors, or other persons that could otherwise bedisqualified as a result of the Order.24. TCI is hereby ORDERED to cease and desist from offering, selling or renewing theInterest Feature or any security that is not registered, qualified, or exempt to investors in Michigan.25. TCI is hereby ORDERED to pay a civil fine in the amount of $29,411.76 toMichigan, pursuant to MCL 451.2604.26. Full payment in the amount of $29,411.76 (in United States dollars) shall betendered within ten (10) days after entry of this Order.27. TCI shall pay the civil fine by check, money order, or by ACH according to theFine Payment Instructions included with this Consent Order. If TCI pays the civil fine by checkor money order, TCI must make the instrument payable to “State of Michigan” and write “ENF-

24-020022” on it, enclose the “Payment Processing Stub” included with the Fine PaymentInstructions, and mail it to:Corporations, Securities, and Commercial Licensing BureauAttn: Final Order MonitoringPO Box 30018Lansing, MI 48909Please consider mail processing delays when determining how and when to pay the civil fine.28. Payments by check or money order must be accompanied by a cover letteridentifying TCI (with relevant tax identification numbers) and the file number of theseproceedings. A copy of the cover letter must be sent to the Bureau’s Final Order MonitoringSection at the address identified in the previous paragraph.29. This Order shall be binding upon TCI, its parent and affiliates, and theirrespective successors and assigns with respect to the provisions above and all future obligations,responsibilities, undertakings, commitments, limitations, restrictions, events, and conditions.THIS SPACE IS INTENTIONALLY BLANK

THE ADMINISTRATOR HEREBY ORDERS THAT THE TERMS AND CONDITIONS INTHE ABOVE ARE INCORPORATED IN THIS CONSENT ORDER.By: _____________________________________ Dated:____________Linda CleggAdministrator and DirectorCorporations, Securities & Commercial Licensing Bureau/s/ Lindsay DeRosia for Linda Clegg 3/28/24