BlockFi in SEC Crosshairs for High-Yield Crypto Accounts

The U.S. Securities and Exchange Commission (SEC) are looking into BlockFi Inc. and its product that pays its customers high interest rates for lending their digital tokens, according to a BNN Bloomberg report Wednesday (Nov. 17).

The SEC wants to know whether New Jersey-based BlockFi’s accounts are similar to securities and should thus be registered with the agency, a person familiar with the investigation told Bloomberg. BlockFi says it pays annual yields up to 9.5%, compared to 0.06% for bank savings accounts.

New Jersey, Texas and other states have questioned whether BlockFi is marketing products that can’t live up to the promises the company puts forward with them. The SEC hasn’t lodged any accusations against BlockFi yet, and there’s no guarantee the investigation will lead to any sanctions against the company.

BlockFi has more than 500,000 retail accounts and a valuation of more than $4 billion, with Bain Capital and Tiger Global Management among its investors.

Since taking over as SEC Chairman in April, Gary Gensler has repeatedly urged banks with crypto-lending products to talk to the agency about how they should be regulated. In July, New Jersey’s Bureau of Securities demanded that BlockFi cease and desist from offering its accounts through at least December.

Kentucky did something similar, while Texas, Alabama and Vermont each told BlockFi the company must prove its product should be offered in those states.

Meanwhile, BlockFi is on pace to make $475 million in gross revenue this year, according to co-founder Zac Prince. BlockFi says on its website that it’s in “active dialogue” with regulators from New Jersey, Texas, Alabama, Vermont and Kentucky and that its products are “lawful and appropriate.”

Related: Bitcoin Daily: BlockFi, Visa To Offer Card With Bitcoin As Rewards

In December, Visa partnered with BlockFi on a credit card that offers bitcoin rewards rather than travel points or cash back.

The BlockFi Bitcoin Rewards Credit Card gives 1.5% cash back on all purchases and converts it to bitcoin. It has a $200 annual fee and is seen as another step toward mainstream adoption for cryptocurrency.