Texas is the latest state to file a cease-and-desist order against BlockFi, the New Jersey-based digital currency company. Regulators in Texas are targeting BlockFi and its two subsidiaries—BlockFi Trading and BlockFi lending—and are claiming that BlockFi is selling unregistered securities via its BlockFi Interest Accounts.
According to the Texas State Securities Board:
On or about April 20, 2021, the Enforcement Division of the State Securities Board (the “Enforcement Division”) notified Respondent BlockFi that Respondents may have offered securities in Texas that may not comply with the Securities Act. The Enforcement Division also explained the regulation of the securities market in Texas, including the identification of laws that require the registration of securities, the registration of dealers and agents, and the truthful disclosure of all known material facts. Nevertheless, Respondents have continued to offer the BIAs to Texans in violation of Sections 7 and 12 of the Securities Act.
Texas is the third state this week to issue BlockFi a cease-and-desist order due to BlockFi offering BlockFi Interest Accounts to the state’s residents. Earlier this week, we have seen BlockFi’s home state of New Jersey issue BlockFi a cease-and-desist order, and the state of Alabama issue BlockFi a show cause order, over BlockFi’s Interest Account offering.
Shortly after the Alabama securities commission issued BlockFi the show cause order, BlockFi took to Twitter saying,
“We are aware of the show cause order issued by the Alabama Securities Commission. We have active dialogues with regulators worldwide, including those in Alabama, to share details about our products, which we believe are lawful and appropriate for crypto market participants. Our stance hasn’t changed – the BlockFI Interest Account is not a security.”
What’s an interest account?
Interest accounts allow individuals to stake and lend their digital assets for a yield on their initial amount. Lending and borrowing platforms like BlockFi were one of the earliest forms of decentralized finance, allowing individuals to receive peer-to-peer financial services that resembled those you get in the traditional financial world.
Deadlines are approaching
There is a regulatory crackdown going on in the blockchain and digital currency space, and recently, BlockFi’s interest accounts have been an area that financial regulators in several states have been focusing on. Never before have we seen regulators take a close look at a digital currency lending product, and the decision these financial regulators make regarding BlockFi’s interest accounts is likely to affect several other service providers that also offer digital currency lending and borrowing services.
While Alabama is giving BlockFi 28 days to show cause why they should not be directed to cease and desist from selling unregistered securities in Alabama, and New Jersey is giving BlockFi until July 29 to stop offering Interest Accounts to New Jersey residents, the State Office of Administrative Hearings in Texas will decide whether BlockFi can continue operating in Texas in October.
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