Texas moved to halt BlockFi’s unregistered crypto interest accounts

Texas securities regulators filed a notice of hearing on July 22, 2021, seeking a cease-and-desist order against BlockFi, BlockFi Lending and BlockFi Trading over their cryptocurrency interest accounts. The Texas State Securities Board’s enforcement division alleged that the companies were financing lending and proprietary-trading operations through securities that had not been registered for sale in the state.

The filing did not immediately shut down BlockFi Interest Accounts, commonly called BIAs. It scheduled an administrative hearing for October 13, 2021, at which BlockFi could contest the allegations before any proposed cease-and-desist order was entered. That procedural distinction mattered: BlockFi could continue operating while the case remained pending, and the filing expressly preserved its ability to pay interest, return principal and otherwise deal lawfully with existing clients.

What Texas alleged

A BIA customer transferred eligible cryptocurrency to BlockFi Trading, after which the assets passed to BlockFi Lending. According to the notice, customers relinquished control of those assets while BlockFi could commingle them, lend them to institutional or corporate borrowers, invest them in markets or use them in other permitted transactions. Customers received interest that accrued beginning the following day and compounded monthly.

The regulator said BlockFi’s website had recently advertised an annual return of up to 8.6% on certain cryptocurrencies. That figure was a contemporaneous promotional rate cited by the enforcement filing, not an independently verified realized return for every customer or asset.

Texas also attributed substantial scale to the product. The notice said BlockFi had more than $15 billion in assets under management and more than 350,000 funded BIA accounts as of March 31, 2021. It further alleged that more than 25,000 Texas residents accounted for over $691 million under management as of June 9, 2021. Those figures came from the regulator’s case record and were not accompanied by audited account-level data.

The enforcement division argued that BIAs qualified as investment contracts, notes or evidences of indebtedness under the Texas Securities Act. It alleged that neither the accounts nor the relevant sellers were registered as required. The filing also emphasized that BIAs lacked protection from the Federal Deposit Insurance Corporation, National Credit Union Administration and Securities Investor Protection Corporation.

A proceeding, not a final judgment

The July 22 notice presented allegations rather than adjudicated findings. Texas said it had alerted BlockFi around April 20, 2021, that the product might conflict with state securities law and alleged that the company continued offering it afterward. The requested remedy was an order stopping unregistered offers and sales; the filing left open the possibility of other remedies but did not impose a fine or restitution on July 22.

BlockFi maintained in a same-day public response reported by CoinDesk that its interest account was lawful. The surviving contemporaneous record therefore showed a live dispute over classification, registration and disclosure—not a final determination that BlockFi had violated the law.

Why the action mattered

Texas joined a rapidly developing state-level challenge to crypto yield products. New Jersey had acted earlier that week, while the Alabama Securities Commission announced on July 21 that BlockFi had 28 days to explain why it should not be ordered to stop selling allegedly unregistered securities there.

The emerging issue reached beyond one company. Crypto lenders marketed returns on deposited digital assets using language familiar from savings products, but the accounts did not carry ordinary deposit insurance and involved customers transferring control of assets to a private borrower. The Texas case placed the legal status of that structure—and the disclosures accompanying it—at the center of the regulatory debate.

This was principally a market-structure and investor-protection development. No token-price reaction is asserted here because the reviewed records do not establish a reliable event-specific causal move.

Later context

On February 14, 2022, the Securities and Exchange Commission announced a settlement under which BlockFi agreed, without admitting or denying the SEC’s findings, to pay $50 million to the SEC and another $50 million to 32 states. That later resolution helps establish the July 2021 action’s significance, but it was not knowable on July 22, 2021, and does not alter the event-day distinction between allegations and final findings.