Alabama regulators are accusing BlockFi of offering unregistered securities

The state of Alabama is the second state in the United States to raise concerns about BlockFi, a major crypto lending platform.

The Alabama Securities Commission (ASC) has issued an express order to the New Jersey-based company BlockFi, ASC director Joseph Borg officially announced on Wednesday.

The regulator said BlockFi has already faced a cease and desist order from the New Jersey Securities Department and now has 28 days to provide reasons why the platform should not be forced to stop selling “unregistered securities” in Alabama.

According to ASC, the interest account of BlockFi’s interest-bearing cryptocurrency BlockFi is a security. “BlockFi has raised at least 14.7 billion US dollars worldwide through the sale of these securities,” said the regulator.

The ASC claims that BlockFi, along with affiliates BlockFi Lending and BlockFi Trading, “at least partially” financed cryptocurrency lending and trading operations through funds generated from sales of securities. The order also states that BlockFi has not notified investors that its BIA has not been approved by the ASC or any other securities regulator, despite the company claiming to be a “regulated US entity”.

BlockFi later said the company was aware of the ASC’s cause disclosure order and was ensuring it had “active discussions with regulators around the world,” including those in Alabama. BlockFi said the company remains confident that its products are legitimate and relevant to crypto market participants, adding, “Our attitude has not changed – BlockFI’s interest is not security.”

[1/1]We are aware of the official order from the Alabama Securities Commission. We are actively engaged in discussions with regulators around the world, including those in Alabama, to share details about our products that we believe are legal and suitable for crypto market participants.

– BlockFi (@BlockFi) July 21, 2021

The ASC said the move was due to growing concerns about the growing popularity of decentralized financial platforms like BlockFi, which are designed to provide financial services without relying on central financial intermediaries.

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Unlike traditionally regulated banks and brokerage firms, investor funds are not protected by either the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation and are therefore subject to higher losses, the agency found.

The ASC’s action comes two days after the New Jersey Securities Commission issued a cease and desist order to BlockFi preventing the platform from referring clients with new interest accounts in the state.