California regulator investigating crypto interest accounts
The California Department of Financial Protection and Innovation (DFPI) has warned consumers to “exercise extreme caution” when dealing with interest-bearing crypto-asset accounts.
The DFPI stated that it is investigating multiple crypto interest account providers to determine whether they are “violating laws under the Department’s jurisdiction.”
In a July 12 note, the DFPI emphasized that crypto-interest account providers “are not governed by the same rules and protections as banks and credit unions” and that some platforms are “preventing customers from withdrawing from and transferring between their accounts.”
“The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms.”
“Consumers are encouraged to exercise extreme caution before responding to any solicitation offering investment or financial services,” the DFPI added.
The DFPI also said that in its view certain crypto-interest account providers have been providing unregistered securities, pointing to two cease and desist orders it recently issued to BlockFi and Voyager to stop their offerings in California.
The warning comes in response to crypto interest account providers such as Celsius Network and Voyager Digital both locking up customer assets over severe liquidity issues amid a crypto bear market.
As it stands, customer funds of both platforms have been locked up for several weeks, with the fate of their depositors’ holdings is still unclear.
Voyager has at least outlined a potential recovery plan after post-bankruptcy restructuring, which would allow depositors to receive a combination of Voyager tokens, cryptocurrencies, “common shares in the newly reorganized company,” and funds from any proceedings with 3AC.
However, the company has also tentatively suggested that it may not be able to make all users whole again.
In a blog post on Monday, Voyager stated that “the exact numbers will depend on what happens in the restructuring process and the recovery of 3AC assets.”
Depositors weren’t happy, with Twitter user SizzleMcAffy seemingly echoing the DFPI’s concerns about risk disclosures:
“If I’d known that this platform could freeze my assets without consent, I’d never have opened an account. It’s crazy that you all can use our assets to prop your value up. This kind of behavior is going to severely damage the crypto industry.”