BlockFi Faces Crackdown by a Third US State, Texas

BlockFi Faces Crackdown by a Third US State, Texas

Texas regulators alleged on Thursday that BlockFi’s Interest Account (BIA) product is a security under state rules in the latest blow to the crypto lender’s business model.

The Texas State Securities Board (TSSB) filed for a cease-and-desist against BlockFi, BlockFi Trading and BlockFi Lending, hoping to secure a judge’s sign-off after an October hearing, CoinDesk has learned. The filing gives BlockFi a chance to formally respond to the allegations, but the company is allowed to continue operations until the hearing.

“This legal action affords BlockFi and its affiliates the opportunity to respond to our allegations and present admissible evidence,” TSSB Director of Enforcement Joe Rotunda said. He shared a copy of the notice with CoinDesk.

The proposed cease-and-desist would prevent BlockFi from offering its BIA product without at least registering with the state’s securities regulator.

Texas joins Alabama and New Jersey in alleging that the crypto lending platform’s interest-bearing product might violate state securities laws.

BlockFi’s hired crisis communications manager did not immediately reply to a request for comment.

Like New Jersey, Texas is arguing that the fact BlockFi customers place their cryptocurrencies in the lending platform’s control for BlockFi to invest and commingle with other customer and corporate funds may be a securities law violation.

“The BIAs constitute investment contracts, notes, or evidences of indebtedness regulated as securities as that term is defined by Section 4.A of the Securities Act,” the filing said.

Texas said it notified BlockFi in late April that its lending product might be violating state securities rules. BlockFi continued to illegally offer BIA in Texas, TSSB alleged.

TSSB said BlockFi has at least 25,000 clients in Texas with $691 million in total assets.In a tweet responding to the allegations from Alabama’s regulator, BlockFi said its interest accounts aren’t securities.

Read the filing here: