A Jersey City-based crypto wealth management firm needs to stop selling unregistered securities in the form of interest-earning cryptocurrency, acting Attorney General Andrew Bruck said on Tuesday.
Bruck issued a cease and desist order against BlockFi, Inc.
BlockFi allows investors to purchase a BlockFi Interest Account through cryptocurrency like Bitcoin and deposit funds into accounts at BlockFi. BlockFi pools the different cryptocurrency together to fund its lending operations and proprietary trading. BlockFi promises investors an attractive interest rate that is paid monthly in cryptocurrency in return.
According to the Order issued by the Bureau yesterday, BlockFi has been funding some of its operations through the sale of unregistered securities in violation of the Securities Law. The findings say that BlockFi had failed to disclose to investors that its interest accounts are not registered with any securities regulator or exempt from regulation.
“Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws,” said Bruck. “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.”
The BlockFi website contains a “Disclosure and Complaints” page that advises dissatisfied investors to contact BlockFi’s Customer Service online by providing a list of state banking regulators and BlockFi’s contact information instead of contacting their local jurisdiction to file a complaint.
The order states that BlockFi fails to explain that BlockFi Interest Accounts are not licensed and that complains should be filed with the New Jersey Bureau of Securities because the BlockFi Interest Accounts are securities.
“When it comes to cryptocurrency financial products, we urge investors to look beyond the promise of heightened returns and approach them with extreme caution,” said Bureau Chief Christopher Gerold. “As the online cryptocurrency-related investment market continues to evolve, the Bureau will continue to enforce the securities laws to safeguard the public.”