The California Department of Financial Protection and Innovation (DFPI) is investigating numerous US businesses that offer cryptocurrency interest accounts in light of the fact that some cryptocurrency lenders are facing a downturn in the cryptocurrency market.
The DFPI in a statement on 12 July 2022 said that they are looking into various crypto lending companies that were providing customers with interest-bearing cryptocurrency accounts.
The California regulator added that some crypto-interest accounts were unregistered securities and cited recent measures taken against BlockFi and Voyager.
For failing to register its lending product, BlockFi previously consented to pay a fine of $100 million to the Securities and Exchange Commission (SEC).
A consent order was also issued by Iowa State against the company, alleging that the lender offered unregistered securities. As a result, BlockFi was required to pay over $900,000.
The DFPI added that the Department was investigating loan companies to see whether they were breaking any of the regulations established by the regulator.
In a statement, the DFPI reads that “The California Department of Financial Protection and Innovation (DFPI) is looking into a number of businesses that provide consumers with interest-bearing crypto asset accounts, sometimes known as “crypto-interest accounts,” around the country. Customers who open a crypto-interest account can lend the business crypto assets in exchange for interest that is paid in crypto assets.”
Some of these businesses are restricting consumers from making withdrawals and transfers inside their accounts due to current market conditions.
The Department also alerted investors and consumers in California there is a possibility that many cryptocurrency providers may not have appropriately disclosed the risks to users when they deposit cryptocurrency assets onto these platforms.
The providers of cryptocurrency interest accounts are not subject to the same regulations and safeguards as banks and credit unions, which are obligated to offer deposit insurance, DFPI underlined.
Certain crypto-interest accounts were discovered by the Department to be unregistered securities in recent actions against BlockFi and Voyager Digital.
The purpose of securities registration, in part, is to ensure that investors receive all material information needed to evaluate whether to enter into these crypto-interest accounts and deposit their funds.
The department is looking into whether other companies offering crypto-interest accounts are breaking any laws that fall under their purview.
They also advised citizens that before responding to any solicitation offering investment or financial services, consumers are advised to proceed with the utmost caution.
The department also asked the customers in California that any companies offering crypto-interest accounts that have slowed down or stopped transferring or withdrawing cryptocurrency assets should be reported to the department
Citizens can write with their queries or concerns at email@example.com or toll-free at (866) 275-2677. They can also lodge a formal complaint with the DFPI at https://dfpi.ca.gov/file-a-complaint/.
If a customer wants to file a complaint, he/she should enclose the following documents namely, transaction history; correspondences with the provider; screenshots of all other data pertaining to their tokens and the appropriate blockchains; and transaction history, which is typically accessible through the crypto-interest account provider’s website or app.
Recently, Celsius, which also stopped accepting withdrawals on June 13, paid back its full debt and reclaimed wrapped BTC collateral valued at $440 million.
Following the market slump, the company, like other failing cryptocurrency businesses, also let go of 150 of its employees.
An additional fraud lawsuit was filed against Celsius by a former asset manager who claimed, among other things, that the company had inflated the value of its CEL token using money from its customers.
While all has been going on, Celsius has been working to regain his health and avert more calamities. The troubled lending platform recruited restructuring attorneys from Akin Gump Strauss Hauer & Feld LLP in June.
Nearly a month later, Celsius switched legal counsel, hiring Kirkland & Ellis LLP without explanation.
With the market showing a downtrend, the US market was hit the most, as many users lost their funds. Luna’s collapse was also one of the reasons why the market slumped down to below $1 trillion from its peak of over $2.7 trillion.
Taking a cue from this, some US state authorities have now decided to keep a tap on the functioning of crypto loan companies.