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 your customers.
Initially, information about an unpublished draft of the order was advanced in a Forbes report on July 19. In the evening, Zac Prince, CEO of BlockFi, wrote on Twitter that, in effect, they had been ordered not to accept any more New Jersey resident clients for their interest-bearing account service.
However, will continue to serve residents of that state who already have an account to generate interest on the platform (BlockFi Interest Account), said the founder also.
Today, July 20, the New Jersey State Department of Legal and Public Safety published 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, it is noted that BlockFi has financed its operations with cryptocurrencies through the unregistered or authorized sale of securities, in accordance with federal law on the matter. .
Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey laws regarding securities. No one gets a free pass just for trading 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 so-called “Cease and Desist” order asks the company to implement this measure as of July 22, 2021, a setback for BlockFi and its affiliates in New Jersey, at the federal level.
Old rules for a new investment model
A team of New Jersey federal prosecutors and legal representatives investigated the BlockFi model and their impressions are also included in the announcement of the order.
As stated in the note, BlockFi would take cryptocurrencies such as BTC and ETH from its users’ accounts and would be lending them to other clients. For this reason, BlockFi gives back to its customers a percentage of interest or profitability on a monthly basis.
Authorities note that the interest rates offered by BlockFi to its clients 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 Division of Consumer Affairs. According to it, BlockFi users could be exposed to sudden price changes.
BlockFi offers attractive interest rates compared to other financial services on the market. Source: BlockFi / blockfi.com
In addition, the authorities point out that BlockFi has not registered its ‘BlockFi Interest Accounts’ service with any regulatory body, but that this type of service is not exempt from legally registering before various instances.
To the greater dissatisfaction of the authorities, they accuse BlockFi of urging its users not to inform the authorities first before your 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 your disagreement with the authorities regarding not considering the “BlockFi Interest Account” as a security or 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 are doing?
In the press release the 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 the 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 an incentive for the authorities to have considered issuing the order.
The authorities are also insistent in their role to protect the user and consumer, so it is also worth remembering other risks, such as the fact that BlockFi sent more than 700 BTC by mistake to at least 100 of your clients, as we report in CriptoNoticias.
A recent review by bitcoiner pioneer Jameson Lopp did not detect major inconveniences or risks in BlockFi, although he noted that making a withdrawal was an uncomfortable and difficult process. However, these types of platforms remain under the scrutiny of everyone.