New Jersey Ordered BlockFi to Halt New Crypto Interest Accounts

The New Jersey Bureau of Securities entered a summary cease-and-desist order against BlockFi Inc. and two affiliates on July 19, 2021, finding that the companies had offered and sold unregistered securities through BlockFi Interest Accounts.

The order was scheduled to become effective on July 22. It directed the companies to stop offering any security—including a BlockFi Interest Account, or BIA—to or from New Jersey unless the product was registered, federally covered or exempt from registration. It did not prohibit BlockFi from paying interest on existing accounts or returning customers’ principal under the applicable terms.

The action mattered beyond one state. BlockFi had packaged cryptocurrency lending as a consumer-facing yield product, allowing customers to transfer digital assets to the company in exchange for monthly interest. New Jersey’s order placed that arrangement squarely inside the state’s securities framework rather than treating it as an ordinary deposit account or merely a cryptocurrency transaction.

How the accounts worked

According to the regulator’s findings, customers deposited eligible cryptocurrencies through BlockFi Trading, after which BlockFi pooled the assets to finance lending operations and proprietary trading. BlockFi’s terms allowed the company to commingle, invest or lend deposited assets, including to institutional and corporate borrowers.

Customers received variable interest calculated from their account balances and paid monthly in cryptocurrency. The order said BlockFi advertised annual percentage yields of up to 7.5% on certain digital assets. That figure was a maximum promotional rate recorded by the regulator, not a return available on every asset, balance tier or account.

The Bureau said BlockFi held the equivalent of $14.7 billion through BIAs as of March 31, 2021. That was the regulator’s stated snapshot based on information obtained during its investigation; the order did not provide an independently audited, asset-by-asset reconciliation of the total.

The scale made the classification dispute institutionally important. If the accounts were securities, registration requirements and securities-law disclosures applied to their offer and sale. BlockFi and its affiliates were not registered with the New Jersey Bureau of Securities, according to the order.

A yield product without deposit insurance

New Jersey emphasized that BIAs were not insured by the Federal Deposit Insurance Corporation and were not protected by the Securities Investor Protection Corporation. Those observations did not establish that the product would necessarily lose money. They identified a material difference between a BIA and assets held at an insured bank or a qualifying securities account at a SIPC-member brokerage.

That distinction was central to the developing crypto-credit market. The accounts used language familiar from savings products—interest, annual percentage yield and monthly compounding—but customers transferred control of their cryptocurrency to a private company that could deploy it in lending and trading activities.

The July 19 order represented the Bureau chief’s findings and legal conclusions under New Jersey law. BlockFi retained procedural rights to respond, request a hearing or seek to have the order lifted. It therefore should not be described as a court judgment or a nationwide prohibition.

BlockFi’s event-day response

Late on July 19, BlockFi chief executive Zac Prince publicly confirmed that the company had received the order. He said the platform remained operational for existing New Jersey clients and indicated that the restriction concerned new BIA customers in the state. BlockFi maintained that its interest account was lawful and said it would continue engaging with regulators.

No cryptocurrency-price reaction is attributed to the order here. Digital assets traded continuously across multiple venues, and the reviewed records do not establish a defensible instrument-specific event window separating the order’s effect from the broader market decline underway in July 2021.

Later context

On July 21, 2021, New Jersey extended the order’s effective date from July 22 to July 29 while considering BlockFi’s submission. In February 2022, BlockFi later reached settlements with the Securities and Exchange Commission and participating state regulators over its interest-account product. Those developments clarify the order’s subsequent path but were not knowable when it was entered on July 19.