Texas alleges that BlockFi is offering unregistered securities

The state’s financial regulator join its counterparts in New Jersey and Alabama in taking action against the crypto lending platform.

The Texas State Securities Board has filed for a cease and desist order against crypto lending firm BlockFi for not offering a security licensed at the state or federal level.

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.

Should the judge grant the order at the Oct. 13 virtual hearing, BlockFi and its affiliates BlockFi Lending and BlockFi Trading would likely be required to stop offering BlockFi Interest Accounts in the state without registering with a local regulator or the U.S. Securities and Exchange Commission. The filing claims that BlockFi has more than $691 million assets under management from roughly 25,000 Texas residents as of June 9.

Texas’ Enforcement Division of the State Securities Board notified BlockFi on April 20 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.”

BlockFi is already facing a cease and desist order from the New Jersey Bureau of Securities preventing it from onboarding new interest account clients. Today the Alabama Securities Commission also issued an order giving the platform 28 days to show cause why it should not be subject to similar regulatory penalties for allegedly selling unregistered securities in Alabama. The lending platform has claimed the BlockFI Interest Account is not a security.

With the exception of BlockFi, Texas has generally been a state welcoming to crypto and blockchain firms. Governor Greg Abbott has spoken openly about his support of local laws concerning crypto and blockchain, with lawmakers passing a bill to recognize cryptocurrencies under commercial law in the state in June.

In addition, the state is already home to some major crypto mining firms including Riot Blockchain, Argo Blockchain, and Blockcap. Cointelegraph reported last month that miners displaced by regulatory crackdowns in China might be looking at Texas given the state’s cheap electrical costs.