The California Department of Financial Protection and Innovation (DFPI) has warned consumers to "exercise extreme caution" when dealing with interest-bearing cryptocurrency accounts as it begins an investigation into whether big players in this part of the crypto industry have broken the law.
Without naming which companies, the DFPI stated that multiple businesses engaged in providing interest-bearing cryptocurrency accounts are being investigated to determine whether they are violating laws under the department's jurisdiction. (Related: Founder of fraudulent crypto CONVICTED for stealing over $6 million from investors.)
In a recent statement, the DFPI noted that crypto-interest account providers "are not governed by the same rules and protections as banks and credit unions" and that it is focusing its efforts on investigating crypto lending and interest accounts providing companies that are "preventing customers from withdrawing 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," wrote the DFPI."Consumers are encouraged to exercise caution before responding to any solicitation offering investment or financial services."
"Crypto companies should be aware that both state and federal regulators are focused on crypto-interest-bearing accounts claiming to be insured by the FDIC," noted attorneys working for Los Angeles-based law firm Sheppard Mullin Richter & Hampton LLP.
"In these cases, recourse for locked or lost cryptocurrency may not be readily available. This DFPI consumer alert should be viewed in light of a broader nationwide effort to regulate and protect consumers engaging in cryptocurrency investing or transactions."
Crypto lending and interest companies are crashing
This is not the first time the California DFPI has pursued investigations into several cryptocurrency companies. The department has taken action against BlockFi and Voyager Digital, two companies that lend cryptocurrency assets and provide interest-bearing accounts.
Voyager Digital halted withdrawals following the crash in the value of cryptocurrency assets and then filed for Chapter 11 bankruptcy a few days later. The DFPI's investigation into BlockFi and Voyager Digital found that certain interest-bearing accounts in these two companies constituted unregistered securities.
"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 account arrangements, such as risks being taken with deposited funds," said the DFPI in a consumer alert.
BlockFi and Voyager Digital were hit with cease and desist orders to stop offering interest-bearing crypto accounts in California.
The department has urged potential investors to exercise extreme caution before investing with digital asset lenders. For those who have already done business with lenders and these companies have halted withdrawals, transfers and other transactions, the DFPI has called on clients to contact company heads with questions and to file formal complaints with the department.
"The digital asset lending sector has felt this year's bear market the most. These lenders have been offering very high returns to investors, attracting tens of billions from investors," wrote Steve Kaaru for CoinGeek. "However, with prices collapsing in April, a bank run ensued, and most of them couldn't keep up. For others, their intricate entanglement with other failing ventures – such as Voyager Digital to 3AC – proved to be their downfall."
Many other companies engaged in providing clients with interest-bearing crypto asset accounts have experienced similar downward turns in their businesses in recent months, leading to them taking measures similar to Voyager Digital to prevent any further loss in value.
Last month, the Celsius Network announced it would pause all crypto asset withdrawals and transfers between user accounts, citing "extreme market conditions."
The company was among the first major crypto companies to issue pauses on user activity. This led to a butterfly effect on the rest of the industry, with BlockFi and Voyager Digital issuing similar announcements.
Watch this episode of the "Health Ranger Report" as Mike Adams, the Health Ranger, talks about how corporate media outlets are preparing to attack cryptocurrencies to pave the way for a centralized, government-controlled digital currency.
This video is from the Health Ranger Report channel on Brighteon.com.
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