BlockFi has once again found itself in dire straits just days after getting slapped with a cease and desist order from the state of New Jersey
BlockFi seems to be facing a knock-on effect in other states after New Jersey's decision to pursue it over allegations of illegally selling unregistered securities in the state. Last week, New Jersey ordered BlockFi to stop offering BlockFi Interest Accounts (BIAs) to any new customers as they violated the state's securities laws. Since the announcement, Texas and Alabama have joined in and placed similar restrictions on BlockFi's operations.
A subsequent posting on BlockFi's website revealed that the state of Vermont had also raised concerns about the BIA accounts, with the crypto company not divulging more on the matter. BlockFi's home state of New Jersey set the wheel in motion on Tuesday when the state's Bureau of Securities demanded that BlockFi halt new client sign-ups for its BIA offerings.
Two days later, the Texas State Securities Board filed for a cease and desist order against BlockFi, with a court hearing on the order set for 13 October. The state confirmed that it was acting based on BlockFi's sale of unregistered securities in the form of interest-bearing crypto accounts and the consequent use of the accrued funds to power its lending activities.
The Alabama Securities Commission also slapped BlockFi with a Show Cause Order, to which the firm is required to respond within 30 days. Otherwise, it will receive another order to halt operations, this time from Alabama. Experts have since observed something unusual on the matter as it involves both sides of the US political landscape. Texas and Alabama are Republican-dominated while New Jersey is typically a Democrat state.
A response acknowledging the New Jersey order by BlockFi's CEO Zac Prince confirmed that none of the existing clients would be affected, and the company’s BIA services would still be available to them. Prince also insisted that BlockFi would carry on working with the relevant authorities to continue serving their clients. Andrew Bruck, New Jersey's Acting Attorney General, noted that BlockFi did not offer BlockFi Interest Accounts in other states such as New York, which he explained could be the case because of the laws in place in those states.
BlockFi has maintained its stance, rejecting the view that the BIA accounts can be classified as securities. The firm has also promised to provide updates on regulatory developments to its users. Observers in the crypto space have raised concerns that the states could be working against BlockFi due to its relatively friendly interest rates. In particular, the rates have outdone the traditional offers by textbook banking institutions.