‘No one gets a free pass,’ says New Jersey’s AG after BlockFi comes on the radar
The regulatory fervor in the United States continued unabated on Monday after New Jersey’s acting Attorney General issued a Summary Cease and Desist Order to the crypto-lending platform BlockFi. The New Jersey-based financial services platform was asked to suspend its Interest Account (BIA) operations in the state, with the agency citing the sale of unregistered securities as the cause.
According to a report, the New Jersey Bureau of Securities has asked BlockFi to pause the acceptance of new interest account users in the state. This is due to the agency’s contention that the platform allegedly violated relevant securities laws by partly funding and facilitating its crypto-operations by selling unregistered securities.
While an undated and unpublished draft statement was cited as the source by the aforementioned report, BlockFi CEO Zac Prince also confirmed the news on Twitter this morning. He revealed that while existing clients in the state would have unrestricted access to the platform’s services, the order has called the multi-billion dollar firm to stop accepting new BIA clients from 22 July.
While ensuring their commitment to protecting the interests of their clients, the CEO further stated,
“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.”
This unprecedented action is the first of its kind against a crypto-lending platform, especially one that has gained much steam during the recent bull run. The firm, which had a valuation of over $5 billion, is popular due to its high yields when compared to traditional lending platforms. Its interest rates vary between 0.25% and 8.5%, depending on the staked asset and the size of the deposit.
Investment vehicles in the traditional financial services world, in contrast, offer sub 1% yields, making DeFi seem like a much more lucrative option. According to the report, the draft statement also highlighted that, unlike traditional banks and brokerages, DeFi platforms fail to offer their clients FDIC or SIPC insurance, making their investments riskier.
The AG General Andrew J. Bruck went on to comment that,
“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.”
While the tone for further scrutiny has definitely been set by the AG, it is too early to say whether this constitutes a war against DeFi. Consequently, this order could set a precedent for how other American states would deal with platforms that offer uncategorized assets for financial activities.