The high-interest crypto loan products offered by BlockFi have come under scrutiny by the Securities and Exchange Commission.
The SEC’s review is whether these accounts should be considered securities. This would require them to register with the financial regulator. From the SEC’s perspective, if a consumer invests their money “in a joint venture” with the expectation of profit, it becomes an investment contract over which the regulator should have authority.
The accounts in question offer annual returns of up to 9.5%, while most bank savings accounts offer a paltry average interest rate of 0.06%. Institutional investors who want even more access to coins are willing to pay higher fees, which allows BlockFi and other companies to pay such high interest rates. Companies offering such crypto lending products say deposits have amounted to over $ 40 billion.
Based in Jersey City, New Jersey, BlockFi offers a suite of financial services to crypto investors and has more than 500,000 retail accounts. These services include trading accounts and crypto lending products, which allow customers to borrow money against their virtual tokens. With the backing of established companies such as Bain Capital and Tiger Global Management, the company was recently valued at over $ 4 billion.
While the SEC hasn’t accused BlockFi of any wrongdoing, some U.S. states have already taken action against BlockFi. They believe it may be a question of marketing illicit financial products, which also lack essential consumer protection. Since crypto accounts are not federally insured, regulators fear that customers will lose all of their funds if a company hits a low.
In one case, the New Jersey Securities Office issued a cease and desist letter to BlockFi in July, which has now been extended to December. The state-level regulator has ordered BlockFi to stop offering these crypto loan accounts in its jurisdiction, a move also taken in Kentucky. Meanwhile, authorities in other states have said BlockFi needs to demonstrate why they shouldn’t ban its loan product.
For its part, BlockFi said on its website that it was in “active dialogue” with regulators in New Jersey, Texas, Alabama, Vermont and Kentucky, stressing that its products were “lawful and appropriate. “.
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