Crypto banking platform BlockFi has been barred from offering its popular interest account to New Jersey residents following claims it violated state securities laws.
As reported by Forbes, New Jersey’s Office of the Attorney General served a summary cease and desist on Monday, alleging BlockFi used proceeds from selling unregistered securities to prop up its crypto trading and lending operations.
The decision was confirmed on Tuesday via a tweet from BlockFi chief exec Zac Prince.
BlockFi’s New Jersey ban is set to come in on July 22, so customers have just a few days to enjoy its famously generous interest rates — up to 8.5% depending on the crypto and size of deposit.
According to Prince, the company is engaged in “ongoing dialogue” with regulators.
Prince also maintained BlockFi’s products are “lawful and appropriate,” claimed its interest account is not really a security, and disagreed with the New Jersey ruling.
Speaking about the ban in a draft press release, Acting Attorney General Andrew J. Bruck said:
“Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws. No one gets a free pass simply because they’re operating in the cryptocurrency market.”
BlockFi ban hints wider crackdown
This cease and desist order could be breaking new ground with regards to how US states handle uncategorized assets, particularly crypto investments that offer yield.
While BlockFi deals with Bitcoin and Ether (the SEC considers both commodities), other assets offered by the platform are not so easily classified.
Yield-bearing tokens like Chainlink and Uniswap have so far escaped severe SEC sanctions due to the grey area in which they persist, but this latest development could point to those loopholes closing in certain jurisdictions.
Indeed, its New Jersey ban is likely not what BlockFi CEO Zac Prince envisioned when he told Bloomberg last month that further regulations would be positive for the crypto space.
Prince was reacting to an interview with US senator Elizabeth Warren in which she compared crypto to the “wild west” and called for tighter regulations to curb volatile digital asset markets.
Prince said: “This is part of the natural evolution of new technology and the fact that we’re starting to talk about cryptocurrencies is a positive trend overall for the sector.”