3 states have cracked down on crypto lender BlockFi as the company’s interest accounts draw scrutiny

In this photo illustration the cryptocurrency exchange trading platform Blockfi logo seen displayed on a smartphone with a flag of the United States in the background.
  • Three US states have said cryptocurrency platform BlockFi’s Interest Accounts may be a security under state regulation.
  • New Jersey, Alabama, and Texas said the crypto platform did not register its BlockFi Interest Accounts with regulators.
  • BlockFi CEO Zac Prince says that the interest-bearing accounts are lawful.
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Three US states have said cryptocurrency platform BlockFi may have violated securities law by offering its interest-bearing accounts within their jurisdictions.

All three states – New Jersey, Alabama, and Texas – said the cryptocurrency platform did not register its BlockFi Interest Accounts, or BIAs, with the respective state regulators, and that they may be unregistered securities offerings.

BIA allows clients to deposit their cryptocurrencies and earn interest, depending on how much and which types of assets are deposited.

On July 20, New Jersey issued a summary cease and desist order banning BlockFi from selling unregistered securities through its BIAs and to stop accepting new BIAs in the state. The state said this product violated the state’s securities law.

BlockFi CEO Zac Prince in a tweet revealed that New Jersey, where his firm is based, gave them a week’s worth of extension until July 29 before the ban takes effect.

The next day, Alabama alleged that BlockFi was selling unregistered securities to partly fund crypto lending.

On July 22, Texas filed a cease and desist order against BlockFi and gave the firm 20 days to respond. The state said it notified the cryptocurrency platform as early as April that the company may be in violation of state securities regulations.

Prince has maintained that BIAs are lawful.

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A crypto lender is trying to claw back bitcoin after accidentally depositing hundreds of coins into user accounts

Bitcoin
Bitcoin.

  • BlockFi is trying to reverse course after accidentally depositing bitcoin into users’ accounts.
  • The crypto-lending start-up said fewer than 100 clients were incorrectly credited with cryptocurrency associated with a “promotional payout that did not belong to them.”
  • A screenshot on Twitter appears to show one user received 700 bitcoin from BlockFi by accident.
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Cryptocurrency-lending start-up BlockFi is trying to reverse course after mistakenly sending some of its users bitcoin as part of a promotion.

The company made incorrect promo payouts to certain customers. The company said on Reddit on Tuesday that fewer than 100 clients were incorrectly credited with cryptocurrency associated with a “promotional payout that did not belong to them,” and the situation will not affect BlockFi’s ongoing operations.

According to Bloomberg, a number of recipients withdrew the coins before the company could backpedal. BlockFi CEO Zac Prince said the firm’s exposure is around $10 million, but noted that’s decreasing as more users return the coins.

“BlockFi carries loss reserves as part of its accounting policies and this is a fraction of existing loss reserves – so no negative impact to equity or ongoing platform operations,” Prince told Bloomberg. “The issue that caused the withdrawals was fixed and incremental safeguards have been developed to prevent any similar issue in the future.”

On Friday, the company tweeted: “Some clients who participated in the March trading promotion may see an inaccurate bonus payment displayed in their transaction history. Our team is working on a fix and the proper amounts will be reflected shortly.”

Several users commented in the Tweet replies that they received deposits of bitcoin. One screenshot showed a deposit of 700 bitcoin on Friday. Another Reddit user said he found 30 bitcoins in his account. He said he checked to see if he could withdraw but the withdrawals and trades didn’t work.

Another Reddit user said they received an email from BlockFi accusing them of withdrawing funds and threatening legal action. The user said they were attempting to withdraw USDC which they had deposited a month earlier, unrelated to the promo payment.

BlockFi could not be immediately reached for comment.

Read more: ‘Wolf of All Streets’ crypto trader Scott Melker breaks down his strategy for making money using ‘HODLing’ and 100X trade opportunities – and shares 5 under-the-radar tokens he thinks could explode

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