The New Jersey Bureau of Securities has issued a cease and desist order to stop BlockFi, a bank-like crypto platform, from selling unregistered securities in the form of interest-earning cryptocurrencies accounts.
"Our rules are simple: If you sell securities in New Jersey, you need to comply with New Jersey's securities laws," said Acting Attorney General Andrew Bruck in a statement. "Our Bureau of Securities will be monitoring this issue closely as we work to protect investors."
The order from the Bureau of Securities, a division of the attorney general's office, states that BlockFi, through its affiliates BlockFi Lending LLC and BlockFi Trading LLC, has been funding its lending operations and proprietary trading in part through the sale of unregistered securities, called BlockFi Interest Accounts (BIAs), in cryptocurrency interest-earning accounts.
BlockFi lets investors purchase BIAs by depositing certain eligible cryptocurrencies, including Bitcoin and Ether, into accounts, then pools those cryptocurrencies to fund its lending operations and proprietary trading, taking control over the cryptocurrencies to use them as it sees fit, according to the New Jersey order.
In exchange, investors "are promised an attractive interest rate"— as high as 7.5% — paid monthly in cryptocurrency, based on the amount of cryptocurrencies in their account. They are not told that "its BIA product is not currently registered by federal or state securities regulatory authorities, even though the BIA is a 'security' and should be registered as such," according to the New Jersey order.
