BlockFi Runs into ‘Security’-related Regulatory Problems in New Jersey

Regulators appear set to continue ramping up their scrutiny of the crypto industry – with BlockFi, the major American crypto lending business, served with a cease and desist order by the Attorney General (AG) of New Jersey.

The AG is reportedly set to accuse BlockFi of breaking state securities laws. Per Forbes, which claimed to have obtained a copy of a draft press release from the AG’s offices, the Acting Attorney General Andrew Bruck was quoted as stating:

“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.”

Zac Prince, the BlockFi founder and CEO, was initially quoted as responding:

“The company has no knowledge of any impending actions with the New Jersey Attorney General’s office. We maintain great relationships with the New Jersey regulators and other state and federal regulators.”

But later, via the official BlockFi Twitter account, the firm confirmed that it had “received an order from the New Jersey Bureau of Securities regarding BlockFi Interest Account (BIA) operations in the state of New Jersey.”

BlockFi added that it “has been engaged in an ongoing dialogue with regulators to help them understand our products, which we believe are lawful and appropriate for crypto market participants.”

The firm has conceded, though that the order calls for BlockFi to stop accepting new BIA customers located in New Jersey as of July 22, 2021.

But, it added,

“BIA is not a security, and we therefore disagree with the action by the New Jersey Bureau of Securities. All aspects of the BlockFi platform continue to be accessible to our clients in New Jersey. We will continue to engage with all relevant authorities to protect our clients’ interests and ensure that our products remain available.”

Jake Chervinksy, the General Counsel at Compound (COMP), urged the crypto community to wait and see exactly what the cease and desist order highlighted before rushing to conclusions, writing on Twitter that until then “we have no idea if this is a major crypto problem, just a BlockFi problem or nothing at all.”

Matthew Ballensweig, the Director and Head of Lending at Genesis Trading, also called for restraint, opining that there was “likely nothing near-term coming from this other than more regulatory uncertainty.”

He added:

“I can’t imagine this will have any impact on crypto borrow rates for now. New Jersey depositors will just lend elsewhere.”

Some suggested that uniswap (UNI)-related controversies may be at play – with the token falling under increased scrutiny in recent weeks.

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