BlockFi is back in the news after financial regulators in the state of Alabama claimed that the crypto company’s Bitcoin savings accounts are securities.
Alabama is the second state to lock horns with the firm after the Attorney General of New Jersey ordered the company to stop accepting new customers.
Regulators in Alabama have taken a slightly different approach, however.
Instead of forcing the company to halt operations for Alabamans, the Alabama Securities Commission (ASC) has issued a show-cause notice. In it, Director Joseph Borg has ordered BlockFi to explain “why they should not be directed to cease and desist from selling unregistered securities in Alabama.”
This language indicates that the ASC, like regulators in New Jersey, views BlockFi’s high-interest crypto savings accounts as unregistered securities offerings.
On May 17, some customers of cryptocurrency lender BlockFi noticed something unusual: huge Bitcoin deposits in their accounts. These deposits—in one case more than 700 BTC according to a Reddit user (worth $29 million at the time)—were expensive mistakes that BlockFi later owned up to. In a promotional campaign gone wrong, the company had sent rewards denominated in Bitcoin, rather than in GUSD, a $1-pegged stablecoin created by the crypto exchange Gemini.
Because of its error, BlockFi has had...
These accounts can earn users up to 8.5% on their crypto holdings, including Bitcoin, Tether, and Litecoin. The products’ popularity has also raked in nearly $15 billion for BlockFi, according to local reports.
The company was quick to fire back on Twitter, stating “the BlockFi Interest Account is not a security,” and that the firm is “aware” of the latest show-cause notice. The crypto company has 28 days to respond to the notice.
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