Regulators in the U.S. state of Texas have alleged that BlockFi’s Interest Account (BIA) product is a “security” under state rules.
Texas becomes the third state in the United States to launch what seems to be a crackdown on the business of BlockFi.
Just like Alabama and New Jersey, Texas on Thursday alleged that products on BlockFi’s platform, which are tied to interest rates, violate securities laws in the state.
According to a report by CoinDesk, the Texas State Securities Board (TSSB) filed for a cease-and-desist order against BlockFi, BlockFi Trading, and BlockFi Lending. The cease-and-desist will only take place pending a judge’s ruling after a hearing billed for October.
BlockFi is expected to continue operations pending a legal hearing. The filing by the regulators also allows the crypto-lending platform to respond to the allegations formally.
“This legal action affords BlockFi and its affiliates the opportunity to respond to our allegations and present admissible evidence,”
Joe Rotunda, TSSB’s director of enforcement, directs in the cease-and-desist notice made available to the publication.
Texas is arguing the fact that the company’s customers place their cryptocurrencies in the lending platform’s control for BlockFi to invest and commingle with other customers and corporate funds may violate the state’s securities laws.
“The BIAs constitute investment contracts, notes, or evidence of indebtedness regulated as securities as that term is defined by Section 4.A of the Securities Act,” the filing said.
According to Texas regulators, in April, the crypto-lending platform was notified that its lending products were likely to be violating state securities rules. However, TSSB alleges that BlockFi continued running its $63 million business illegally, rendering services to its over 25,000 clients in Texas.
If the proposed cease-and-desist order stands, BlockFi will offer its BIA products to clients in Texas only when it registers with the securities regulator.
“We firmly believe that the BIA is lawful” the crypto- lender has since tweeted.
