Texas claims BlockFi is selling unregistered securities.

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The state’s financial regulator has joined its counterparts in New Jersey and Alabama in prosecuting the crypto lending platform.

The Texas State Securities Board has issued a cease and desist order against crypto lending firm BlockFi for failing to offer a security that is either state or federally licenced.

According to a Thursday filing, the state regulator will be holding a hearing related to allegations BlockFi is illegally funding its crypto lending operations and proprietary trading through the sale of unregistered securities. Should the judge accept that the platform’s accounts earning interest on crypto represent unlicensed securities, BlockFi may be subject to a cease and desist order.

If the judge grants the order at the virtual hearing on Oct. 13, BlockFi and its affiliates BlockFi Lending and BlockFi Trading will almost certainly be required to stop offering BlockFi Interest Accounts in the state without first registering with a local regulator or the US Securities and Exchange Commission. According to the filing, BlockFi has more than $691 million in assets under management from approximately 25,000 Texas residents as of June 9.

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On April 20, the Texas State Securities Board’s Enforcement Division notified BlockFi that it may not have been in compliance with the state’s Securities Act with its interest accounts. It alleged in today’s filing that the BlockFi Interest Accounts were in violation of Section 4.A of the Securities Act, saying:

“The mere fact an investment is tied to a cryptocurrency, blockchain technology, or some type of digital asset does not remove it from securities regulation if it constitutes an investment contract, note, evidence of indebtedness, or other type of security.”

The New Jersey Bureau of Securities has already issued a cease and desist order, preventing BlockFi from accepting new interest account clients. The Alabama Securities Commission also issued an order today giving the platform 28 days to demonstrate why it should not face similar regulatory penalties for allegedly selling unregistered securities in Alabama. According to the lending platform, the BlockFI Interest Account is not a security.

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With the exception of BlockFi, Texas has been a welcoming state to crypto and blockchain firms. Governor Greg Abbott has publicly stated his support for local crypto and blockchain laws, with lawmakers passing a bill in June to recognise cryptocurrencies under commercial law in the state.

Furthermore, the state is already home to a number of major crypto mining companies, including Riot Blockchain, Argo Blockchain, and Blockcap. Last month, Cointelegraph reported that miners displaced by regulatory crackdowns in China may be looking to relocate to Texas due to the state’s low electricity costs.


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