The state of Alabama is the second state in the United States to raise concerns about BlockFi, a major cryptocurrency lending platform.
The Alabama Securities Commission (ASC) has issued a show cause order to the New Jersey-based company BlockFi, ASC director Joseph Borg officially announced on Wednesday.
BlockFi is already facing a cease and desist order from the New Jersey Bureau of Securities and has 28 days to provide reasons why the platform shouldn’t be forced to stop selling “unregistered securities” in Alabama, the regulator said.
According to ASC, the BlockFi interest-bearing cryptocurrency interest accounts are securities. “BlockFi has raised at least $ 14.7 billion worldwide through the sale of these securities,” the regulator claimed.
The ASC alleged that BlockFi, along with its affiliates BlockFi Lending and BlockFi Trading, “at least partially” funded its crypto lending and trading operations with funds generated from the sale of unregistered securities in violation of securities laws. The order also alleged that BlockFi failed to tell investors that its BIAs were not approved by the ASC or any other securities regulator, despite the company promoting itself as a “US regulated company.”
BlockFi subsequently said the company was aware of the ASC’s show cause arrangement and stated that it had been in “active dialogues with regulators around the world,” including those in Alabama. The company remains confident that its products are lawful and suitable for crypto market participants, BlockFi said, adding, “Our attitude has not changed – the BlockFI Interest Account is not a security.”
[1/1]We are aware of the Show Cause Order issued by the Alabama Securities Commission. We have active dialogues with regulators worldwide, including those in Alabama, to share details about our products that we believe are lawful and suitable for crypto market participants.
– BlockFi (@BlockFi) July 21, 2021
The ASC said that given the growing popularity of decentralized financial platforms like BlockFi, which are designed to provide financial services without relying on central financial intermediaries, the move was due to growing concerns.
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Unlike traditionally regulated banks and brokerage firms, investor funds are not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, which poses a higher risk of loss, the agency found.
The ASC’s action comes two days after the New Jersey Securities Commission issued a cease and desist order to BlockFi preventing the platform from accepting new savings account customers in the state.