Lately, service providers dealing with digital assets have become clear targets to regulators. The most recent company to find itself in this situation is none other than the wildly popular BlockFi.
On July 19th, the New Jersey Bureau of Securities issued an order for BlockFi to cease offering ‘interest-bearing accounts (BIA)’.
Cease and Desist
This order, which requires BlockFi to stop accepting BIA clients based in New Jersey on July 22nd, specifically states that it was issued due to various securities violations.
Not only does are regulators within New Jersey viewing BIA as offering securities, they indicate that further violations have occurred due to a lack of transparency on the part of BlockFi. More specifically, it feels the company not only fails to alert clientele sufficiently that accounts are not FDIC insured, but that it actively tries to route securities concerns to its own customer service department rather than regulators themselves.
This situation has resulted in commentary from both sides, displaying an obvious discrepancy in interpretation of the law and/or services on offer.
Acting Attorney General, Andrew Bruck, states,
“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.”
BlockFi CEO, Zac Prince, states,
“BlockFi is engaged in an ongoing dialogue with regulators to help them understand our products, which we believe are lawful and appropriate for crypto market participants. BIA is not a security, and we therefore disagree with the action by the New Jersey Bureau of Securities…We will continue to engage with all relevant authorities to protect our clients’ interests and ensure that our products remain available.”
Perhaps part of the issue at hand is the lack of clarity as to why BlockFi’s interest-bearing accounts are deemed a securities violation. Is it the promise of a return on investment? Or is it the supported coins/tokens?
BlockFi has been in operation for years, with a large presence at that. The company has raised hundreds of millions in funding, and generated a substantial client-base. The fact that this cease and desist order is only coming now may indicate that it was a recent change to BIA which prompted this action. Perhaps the addition of new assets?
Once upon a time, centralized platforms were often quite selective with the coins/tokens they supported. Clients clamoured for years to have Coinbase expand its support beyond a select few. Times have changed though, and despite the increased attention by regulators, centralized platforms appear to be more comfortable with supporting a greater crop of assets. BlockFi itself recently demonstrated this when it announced the inclusion of both Chainlink, and Uniswap. While regulators have clearly deemed BTC and ETH as not being securities, the status of other assets is not as clear.
While trying times may be ahead for BlockFi, they will find company along the way. Industry leading digital asset exchange, Binance, recently found themselves under fire for alleged securities violations as well. This resulted in the company removing certain services from its platform – namely tokenized stocks in publicly listed companies.
With BlockFi having already restricted access to its BIA in certain states, a simple solution to the issue at hand may be to simply turn off access within New Jersey.