Jersey City-Based Cryptocurrency Company Hit With Cease & Desist

JERSEY CITY, NJ — A Jersey City-based cryptocurrency company was hit with a cease and desist order from Acting Attorney General Andrew J. Bruck — the AG's office said the company was selling unregistered securities in the form of interest-earning cryptocurrency accounts that have raised at least $14.7 billion worldwide.

BlockFi, Inc. (“BlockFi”), through its affiliates BlockFi Lending, LLC (“BlockFi Lending”) and BlockFi Trading, LLC, has been funding its cryptocurrency lending operations and proprietary trading at least in part through the sale of unregistered securities in violation of the Securities Law, according to the Order the Bureau issued yesterday.

“Our rules are simple: if you sell securities in New Jersey, you need to comply with New Jersey’s securities laws,” said Acting Attorney General 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.”

BlockFi allows investors to purchase a BlockFi Interest Account by depositing certain eligible cryptocurrencies – including Bitcoin and Ethereum – into accounts at BlockFi. The company then pools these cryptocurrency deposits together to fund its cryptocurrency lending operations and proprietary trading. In exchange for investing in the BlockFi Interest Accounts, investors are promised an attractive interest rate that is paid monthly in cryptocurrency.

BlockFi has advertising on its website that clainms the company is a ‘US regulated’ entity that ‘play(s) by the rules,’ but according to the order, BlockFi doesn't mention on it's site or to investors that its BlockFi Interest Accounts are not registered with the Bureau or any other securities regulator, or exempt from registration.

On BlockFi's “Disclosure and Complaints” page, investors are instructed to contact BlockFi’s Customer Service online before contacting their local jurisdiction to file a complaint. State banking regulators and their contact information are listed — but the AG's Offcie said BlockFi fails to explain that state banking regulators don't license the BlockFi Interest Accounts. Complaints should instead 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 W. Gerold. “As the online cryptocurrency-related investment market continues to evolve, the Bureau will continue to enforce the securities laws to safeguard the public.”