BlockFi Handed Cease and Desist Order in New Jersey

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Crypto savings provider BlockFi has received a cease and desist order from the New Jersey Attorney General regarding the company’s BlockFi Interest Accounts. 

BlockFi Faces Regulatory Trouble

BlockFi is the latest crypto company to come under scrutiny from U.S regulators.

The firm’s CEO Zac Prince confirmed on Twitter Monday evening that the company had received a cease and desist order from the New Jersey Bureau of Securities. The order calls for the company to stop offering its BlockFi Interest Accounts to new customers in New Jersey, effective Jul. 22. 

Late Monday evening BlockFi received an order from the New Jersey Bureau of Securities regarding BlockFi Interest Account (BIA) operations in the State of New Jersey.

(thread)

— Zac Prince (@CostSegZac) July 20, 2021

In the same thread on Twitter, Prince assured existing customers that all BlockFi services would remain operational and accessible in New Jersey as the order only affects new customers. 

According to Bloomberg, a leaked draft of the cease and desist order contends that BlockFi Interest Accounts are at least partly funded through the sale of unregistered securities, violating securities laws in New Jersey. Additionally, the document contained a comment from the New Jersey Bureau of Securities Attorney General, Andrew J. Bruck, stating:

“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.”

In response, the official BlockFi Twitter account addressed the issue, stating that the company has been engaged in an ongoing dialogue with regulators over the nature of its products. BlockFi also asserted that its interest accounts were not securities and that the company disagrees with the Bureau’s decision. 

The action taken by the New Jersey Bureau is the first of its kind against a crypto savings platform. BlockFi is one of many platforms that offer high yields on crypto deposits. The company currently offers a maximum of 7.5% APY depending on the type of asset and how much is deposited. 

Prominent figures in the DeFi community have taken to Twitter to discuss the regulatory action taken against BlockFi. Jake Chervinsky, the General Counsel at DeFi giant Compound, said it was too early to tell if the move by the Bureau of Securities would affect the wider DeFi market until more details are confirmed.

It's impossible to say without knowing what alleged violation NJ thinks BlockFi might've committed.

I know that's an unsatisfying answer, but without seeing the cease & desist letter, we have no idea if this is a major crypto problem, just a BlockFi problem, or nothing at all.

— Jake Chervinsky (@jchervinsky) July 20, 2021

While the significance of today’s news remains to be seen, it looks to have shaken crypto markets. At the time of writing, Bitcoin has dropped 6.5%, putting it below the local support of $30,000. DeFi protocols have also been hit hard, with many “blue-chip” projects such as Uniswap and Aave falling more than 10%. 

Disclaimer: At the time of writing this feature, the author held BTC and ETH.

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