Another Strike against Blockfi’s Sales through Interest Accounts

Blockfi’s CEO, Zac Prince, explains that his firm has been subjected to productive discourse by the New Jersey Bureau of Securities through the order and that the order has been further extended till 2nd September 2021. Meanwhile, an order by the Department of Financial Regulation (DFR) of Vermont has been filed against the Interest Accounts of Blockfi.

There are currently three compliance issues that have been ongoing against Blockfi with the US. The three issues have been raised by four different regional regulators against particular accounts of Blockfi namely the interest accounts. The latest issue Blockfi has been facing is the one raised by the New Jersey Bureau of Securities (NJBS). A notice dated 19th July 2021 was sent by NJBS to Blockfi. Through the notice, NJBS raised an objection that Blockfi has been engaged in the sales of securities that are apparently unregistered. The authority noticed that unregistered sales were carried out from the Blockfi’s Interest Accounts (BIAs).

Thereafter, similar notices were issued on 22nd July 2021 to Blockfi in the States of Alabama and Texas as well. The regulators of both these states cited the same concern i.e. sale of unregistered security from BIAs. This prompted a quick response by NJBS clarifying that the notices of other state regulators were not the same as NJBS’s.

Now the issues relating to BIAs have escalated even further as the fourth state of the US has issued a fresh notice to Blockfi. This time the notice issuing authority is the Department of Financial Regulation (DFR) of Vermont.

A copy of Vermont’s notice was obtained by a journalist known as Danny Nelson. Nelson had obtained a copy of the notice through his own source on 27th July 2021. According to Nelson, the document revealed that a show-cause notice has been served upon Blockfi under the signatures of DFR’s Commissioner. The notice offers an opportunity for Blockfi to present its case before the authority and apprise why action should not be taken against Blockfi. A time period of 30 days has been given to Blockfi to submit its written response. The notice also provides for a hearing date.

DFR said in the notice that under the law of Vermont, Blockfi is not authorized to sell any securities that are unregistered. The authority further explained to Blockfi that Blockfi should have consulted with the authority before offering the sales. DFR further suggested that under the Securities Act, there is an exception as well which allows a company exemption from registration. However, there is no such exemption granted to Blockfi and therefore Blockfi’s sales through BIAs are illegal and not in accordance with the law.

Blockfi’s CEO, Zac Prince, told Twitter that his firm has been facing issues with multiple regulators in the US. He was trying to take into confidence Blockfi’s customers that the issues will be settled very soon. However, with the new notice in place, the situation looks quite contrary. Meanwhile, the order of NJBS against Blockfi too has been extended for a further period until 2nd September 2021.

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