Interest isn't the only thing compounding at crypto lender BlockFi. Its regulatory troubles are compounding too.
The company has ceased offering BlockFi Interest Accounts (BIAs) to Kentucky residents after receiving a cease-and-desist order Friday from the Kentucky Department of Financial Institutions (DFI), according to a tweet.
It's now been hit by cease and desists or show cause notices by five states: New Jersey, Alabama, Texas, Vermont, and Kentucky.
— BlockFi (@BlockFi) July 30, 2021
"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 Kentucky DFI ordered the firm to "refrain from soliciting or selling any security in Kentucky."
The startup responded in a statement, "BlockFi firmly believes that the BIA is lawful and appropriate for crypto market participants." Nonetheless, it vowed to abide by the order as it works with state regulators.
The BIA is akin to a savings account for crypto—only with much higher interest rates, up to 7.5%. Moreover, instead of stashing dollars, customers keep cryptocurrencies such as Bitcoin or stablecoins there. BlockFi, in turn, lends it out.
Though it's been a mainstay in the industry for some time and has a $3 billion valuation, the company attracted the attention this month of the New Jersey Bureau of Securities, which has issued a deadline of September 2 for BlockFi to stop offering the BIA to New Jersey residents.