The Kentucky Department of Financial Institutions (KDFI) has become the fifth state regulator to claim that the Blockfi interest service violates state securities laws.
It’s now been hit by cease and desist or show cause notice by five states: New Jersey, Alabama, Texas, Vermont, and Kentucky. The Kentucky DFI ordered the firm to “refrain from soliciting or selling any security in Kentucky,” according to report
“Blockfi website offers cryptocurrency lending and borrowing through ‘Blockfi interest Accounts’ (BIAs) advertised on its website,” according to the order. “Through these accounts, investors may deposit certain cryptocurrencies with the company in exchange for a specified interest rate. The company has accepted nearly $15 billion in these account from investors,” the regulator said in a press release.
In response, Blockfi announced it would “immediately” stop signing on new customers in Kentucky. Existing customers remain unaffected.
“A recent DFI investigation found Blockfi is offering securities in the form of investment contracts in relation to the deposit of virtual currencies with the company,” the order reads. “The firm, which is headquartered in New Jersey, has not registered these securities with the Kentucky DFI or the Securities and Exchange Commission as required by law.”
The startup responded in the statement, “Blockfi firmly believes that the BIA is lawful and appropriate for crypto market participants.”
Many state regulators are pursuing allegations against BlockFi violating security laws. New Jersey has given Blockfi until the beginning of September to respond, while Texas securities regulations have a hearing scheduled for early October.