High-interest-bearing crypto lending products offered by BlockFi have brought the company under the scrutiny of the Securities and Exchange Commission.
The review from the SEC concerns whether these accounts ought to be considered as securities. This would require them to register with the financial regulator. From the SEC’s perspective, if a consumer invests their money “in a common enterprise” with the expectation of profit, it becomes an investment contract that the regulator should have authority over.
The accounts at issue offer annual yields that can reach as high as 9.5%, whereas most savings accounts at banks offer a paltry average interest rate of 0.06%. Institutional investors that want even more access to coins are willing to pay higher charges, which enable BlockFi and other firms to pay such high-interest rates. Companies offering such crypto lending products say that deposits have amounted to over $40 billion.
BlockFi’s baggage
Based in Jersey City, New Jersey, BlockFi offers a suite of financial services to crypto investors and boasts more than 500,000 retail accounts. These services include trading accounts and the crypto lending products, which let customers borrow money against their virtual tokens. With the backing of established firms such as Bain Capital and Tiger Global Management, the company was recently valued at more than $4 billion.
Although the SEC has not accused BlockFi of any wrongdoing, some US states have already taken action against BlockFi. They believe it may be marketing illicit financial products, which also lack essential consumer protection. Because crypto accounts are not insured by the federal government, regulators are concerned customers could lose all their funds if a firm bottoms out.
In one instance, New Jersey’s Bureau of Securities issued a cease and desist letter to BlockFi in July, which has now been extended to December. The state-level regulator ordered that BlockFi stop offering these crypto lending accounts in its jurisdiction, an action also taken in Kentucky. Meanwhile, authorities in other states said that BlockFi must demonstrate why they should not ban its lending product.
For its part, BlockFi said on its website that it’s in “active dialogue” with regulators from New Jersey, Texas, Alabama, Vermont and Kentucky, emphasizing that its products are “lawful and appropriate.”
What do you think about this subject? Write to us and tell us!
Disclaimer
In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.
