New Jersey Attorney General Prepares Cease And Desist Order Against Multi-Billion Dollar Bitcoin Financial Services Platform
A draft press release by the New Jersey Office of the attorney General states that the Bureau of Securities plans to issue a Summary Cease and Desist Order for BlockFi, a multi-billion-dollar financial platform using bitcoin. This order will prohibit the offering of interest-bearing accounts.
This action, if signed, could be the first against crypto lending platforms which have experienced exorbitant growth in the current crypto bull market. BlockFi was founded in 2017 and has received $500 million in private financing. It is valued at $5 billion.
Unpublished, undated draft claims that BlockFi has been financing and facilitating its crypto lending and trading operations at minimum partly through the sale unregistered securities in violation of applicable securities laws. Based in New York, the firm offers interest rates ranging from 0.25% to 8.5% depending upon the cryptocurrency asset and deposit size. It also provides a trading platform and a bitcoin rewards credit card. Bankrate reported that the national average interest rate in savings accounts was 0.06 percent for the week of July 1.
Decentralized finance platforms, also known as DeFi in the industry, don’t offer FDIC and SPIC insurance like traditional banks or brokerages. BlockFi, however, is a centralized company that offers similar savings and lending options to other decentralized platforms like Uniswap and Compound.
Andrew J. Bruck made a comment in the document. He stated that “Our rules are simple: If you sell securities in New Jersey you must comply with New Jersey’s Securities laws.” There is no way to get a pass just because you’re in the rapidly-evolving cryptocurrency marketplace. As we protect investors, our Bureau of Securities will closely monitor this issue.
Based on SEC and CFTC comments, Bitcoin and Ether are generally considered commodities. However, BlockFi assets such as Chainlink or Uniswap that BlockFi supports have less clarity. It could set a precedent for states to deal with assets that are yet to be classified if the cease-and-desist is signed.
BlockFi CEO Zac Prins told Forbes that he was unaware of any impending actions by the New Jersey Attorney General. We have strong relationships with New Jersey regulators as well as other federal regulators.