BlockFi is a wealth management and trading firm for cryptocurrency holders that first commenced operations in 2017.  It has had a very busy few months.  In March 2021, it reportedly closed a Series D funding that valued the company at $3 billion.  Block recently reported  that BlockFi is in talks to raise a new Series E funding round of $500 million, which would bring the company valuation to nearly $5 billion.  It has also been reported that this is all a prelude to going public.

At the same time, however, three states — New Jersey, Texas and Alabama — all recently brought actions against BlockFi.  At the heart of the regulatory action is BlockFi’s flagship account, the BlockFi Interest Accounts (BIA).  The state regulators have said that it is a security and that BlockFi has failed to register with the appropriate state authorities.

On July 19, 2021 New Jersey issued a cease and desist order that prevented BlockFi from “offering for sale any security, including any BIA, to or from New Jersey unless the security is registered with the Bureau, is a covered security, or is exempt from registration under the Securities Law.”   New Jersey then postponed the date of its ban on new BIA accounts to July 29, 2021.  BlockFi CEO Zac Prince tweeted in response: “We have been engaged in an ongoing and productive dialogue with the New Jersey Bureau of Securities (NJ BOS) to provide more details about the BlockFi Interest Account (BIA), which we believe is lawful and appropriate for crypto market participants.”

On July 21, 2021 the Alabama Securities Commission (ASC) announced that it had issued a Show Cause Order to BlockFi giving them 28 days to show cause why they should not be directed to cease and desist from selling unregistered securities in Alabama.  The securities the ASC referred to was the BIA, which the regulator said had raised at least $14.7 billion worldwide through the sale of these securities.

The ASC described the BIA as follows: “BlockFi allows investors to purchase a BIA by depositing certain eligible cryptocurrencies – including Bitcoin and Ethereum – into accounts at BlockFi. BlockFi then pools these cryptocurrency deposits together to fund its cryptocurrency lending operations and proprietary trading. In exchange for investing in the BlAs, investors are promised an attractive interest rate that is paid monthly in cryptocurrency.”  The rate is reportedly about 8.5% per annum.

On July 22, 2021, Texas became the third state to act, issuing its own show cause order as to whether to issue a cease and desist order against BlockFi.  As in the other states, Texas alleges that the BIAs “constitute investment contracts, notes, or evidence of indebtedness regulated as securities as that term is defined by Section 4.A of the Securities Act.” Texas seeks to block BlockFi from offering the BIA without at least registering with the state securities regulator.  BlockFi can continue operations until the hearing, which is scheduled for October.

On July 22, 2021, the company tweeted as follows:

We are in active dialogue with multiple regulators to demonstrate that the BlockFi Interest Account (BIA) is not a security and should not be regulated as one.  We firmly believe that the BIA is lawful and appropriate for crypto market participants, and we remain steadfast in our commitment to fight for consumers’ rights to earn interest on their crypto assets.  We welcome discussions with regulators and believe that appropriate regulation of this industry is key to its future success.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.