- DeFi lending platform BlockFi has seen one of its products labelled a security by regulators in three states
- Alabama and Texas have claimed the company’s BIA instrument contravenes securities laws
- New Jersey announced a ban on BIAs effective July 29
DeFi lending and savings platform BlockFi is facing a three-pronged attack from U.S. regulators after one of its products was deemed to contravene securities laws. Alabama and New Jersey had already taken steps to halt the BlockFi Interest Account (BIA) before Texas joined the party yesterday, with all three alleging that the instrument illegally acts as a security. BlockFi denies the claims, but faces a race to keep the product live.
Alabama Starts Ball Rolling
Alabama was the first to protest BIAs on Wednesday, giving BlockFi 28 days to inform the Alabama Securities Commission (ASC) why the product shouldn’t be considered a security. In its Show Cause Order, the ASC claims that “in exchange for investing in the BIAs, investors are promised an attractive interest rate that is paid monthly in cryptocurrency”, also alleging that BlockFi advertises itself as a US regulated entity” when in fact its BIA instrument is not registered with the ASC or any other regulatory body.
New Jersey’s Bureau of Securities (NJ BOS) responded the same day by announcing a ban on BIAs due to take effect the following day, although this was later postponed to July 29 to give BlockFi time to adjust and protect its existing investors. On the back of the NJ BOS decision Texas also joined the argument, echoing the same argument that BIAs broke securities rules and banned Texans from investing in them. However, the state’s cease and desist order won’t take effect until at least October when a judge will rule on the case.
BlockFi’s CEO Remains Defiant
BlockFi CEO Zac Prince has denied the suggestions that BIAs breach securities laws, tweeting that they are “lawful and appropriate for crypto market participants.” He added on Wednesday that the company was in “ongoing and productive” conversations with the regulators over the matter and that BlockFi “will continue to engage with all relevant authorities”.