The BlockFi platform received an order from the Stock Exchange Bureau of the state of New Jersey, United States, to no longer accept residents of this jurisdiction as users of its service, which focuses on loans and exchanges with cryptocurrencies and grants interest and other benefits to its customers.
Initially, information on an unpublished draft of the order was advanced in a Forbes report yesterday, July 19. At night, Zac Prince, CEO of BlockFi, posted on Twitter that, in effect, they had been ordered not to accept any more New Jersey resident customers for their interest-bearing account service.
However, they will be maintained by serving residents of that state who already have an account to generate interest in the platform (BlockFi Interest Account), said the founder.
Today, July 20, the New Jersey Department of Legal and Public Safety released a press release on behalf of acting Attorney General Andrew J. Bruck, BlockFi, who announced the issuance of this order addressed to BlockFi.
Among the reasons mentioned for ordering the termination of the service in this jurisdiction, BlockFi has financed its operations with cryptocurrencies through the unregistered or authorized sale of securities (securities), in accordance with the federal law on the subject.
Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey securities laws. No one gets a free pass just for trading in the rapidly changing cryptocurrency market. Our Securities Bureau will be monitoring closely as we work to protect investors.
Andrew J. Bruck, Acting Attorney General.
The order of the type called ‘Cease and Desist“(Cease and Desist) calls on the company to implement this measure as of July 22, 2021, representing a setback for BlockFi and its subsidiaries in New Jersey, at the federal level.
Old rules for a new investment model
A team of prosecutors and federal legal representatives from New Jersey investigated the BlockFi model and their impressions are also included in the order announcement.
As stated in the note, BlockFi would take cryptocurrencies such as BTC and ETH from its users ‘ accounts and be lending them to other customers. For this reason, BlockFi gives back to its customers a percentage of interest or profitability monthly.
The authorities note that the interest rates offered by BlockFi to its customers are higher than those offered by traditional financial services and banks.
The weak point of this model would be in the cryptocurrency volatilitysaid Kaitlin Caruso, acting director of the Bureau’s Consumer Affairs Division. It claimed that BlockFi users could be exposed to sharp price changes.
In addition, the authorities point out that BlockFi has not registered its ‘BlockFi Interest Accounts ‘ service with any regulator, but that this type of service is not exempt from legally registering before several instances.
To the authorities ‘ greater dissatisfaction, they accuse BlockFi of urging its users to not inform the authorities first before their customer service about any incident or complaint.
For his part, Zack Prince, whom we already mentioned as CEO of BlockFi, closed his comments on Twitter showing disagreement with authorities regarding not considering the “BlockFi Interest Account” as a security o stock market asset.
“BlockFi is committed to engaging with regulators to help them understand our products, which we consider legitimate and appropriate for crypto market participants,” he stated.
Do regulators understand what they do?
In the press release authorities referred to BlockFi as a decentralized finance platform. Although they did not use the abbreviation of DeFi, which is more akin to the cryptocurrency ecosystem, some netizens did not hesitate to point out that authorities could be confusing the terminology.
However, the fact that BlockFi has added the cryptocurrency UNI, the governance token of the DeFi Uniswap platform, may have been perhaps an incentive for authorities to consider issuing the order.
The authorities are also insistent on their role to protect the user and consumer, so it is also worth remembering other risks, such as the fact that BlockFi sent over 700 BTC by mistake to at least 100 of your customers, as we reported in Crypto News.
A recent review by bitcoiner pioneer Jameson Lopp no major drawbacks or risks detected in BlockFi, he noted, however, that conducting a retreat was an uncomfortable and difficult process. However, these types of platforms remain under everyone’s magnifying glass.