BlockFi has received a cease and desist order from New Jersey’s Attorney General; the Attorney General has issued this order because it claims that BlockFi’s lending and trading services are unregistered securities that violate existing securities laws.
This is the first time that we have seen a financial regulator crackdown on a digital currency platform that gives its users a yield on the amount they are lending. The outcome of this case is likely to affect all platforms that give users interest on the digital currency they lend and stake through the platform.
The first of many government actions
BlockFi is a New Jersey-based digital currency company that provides “USD loans backed by crypto, interest-earning accounts, and trading services” to users throughout the United States. BlockFi Interest Accounts allow individuals to earn interest on the digital currencies they stake (lend) on the platform; and BlockFi trading lets users trade BTC, ETH, LTC, LINK, PAXG, and USD-backed stablecoins.
However, the New Jersey Attorney General claims that BlockFi is partially funding and facilitating its cryptocurrency lending and trading operations through the sale of unregistered securities.
“Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws. No one gets a free pass simply because they’re operating in the fast-evolving cryptocurrency market. Our Bureau of Securities will be monitoring this issue closely as we work to protect investors,” said Acting Attorney General Andrew J. Bruck.
However, Zac Prince, the CEO of BlockFi says its products are “lawful and appropriate for crypto market participants,” and that “BIA is not a security, and BlockFi therefore disagrees with the action by the New Jersey Bureau of Securities.”
Although the Attorney General mentions both lending and trading, BlockFi has emphasized that its lending service is the focal point of the Attorney General’s accusations.
Prince says that despite the cease and desist, “BlockFi will remain fully operational for our existing clients in New Jersey,” and that “All aspects of the BlockFi platform continue to be accessible to our clients in New Jersey.” He also notes that the cease and desist order requires BlockFi to stop accepting new BlockFi Interest Account users that reside in New Jersey beginning on July 22nd, 2021.
The crypto crackdown continues
There is a global crackdown taking place on blockchain and digital currency businesses. The New Jersey Attorney General targeting BlockFi shows that the crackdown goes beyond digital currency exchange operators and that watchdogs also have their eye on digital currency lending and borrowing services.
Government agencies around the world are just beginning to issue warnings and bring cases to court regarding the blockchain and digital currency businesses that they claim are illegally operating in their countries–it is only a matter of time until these companies cease and desist, battle it out in court, or go to jail for their actions.