California Takes Action Against Interest-Bearing Crypto Accounts
There are several states in the United States that are working on developing crypto regulation, as the popularity of the space continues to grow and so do the risks. The Department of Financial Protection and Innovation (DFPI) in California issued a warning to people to be cautious before they decide to make investments in crypto accounts that generate interest.
Crypto interest accounts
The DFPI warned people crypto investors in California to refrain from investing in interest-bearing crypto accounts. According to the regulatory authority, it is investigating crypto accounts that offer different rates of interest to customers in order to determine if they are in violation of the laws of the authority in its jurisdiction.
On Tuesday, the DFPI asserted that platforms that were offering these interest-bearing crypto accounts were not complying with the same rules and regulations that are applicable to banks and other financial institutions, like credit unions. In addition, it asserted that some of these platforms had gone as far as restricting their clients from making withdrawals and even transferring their funds between different accounts.
The DFPI added in the warning that investors and consumers in California should stay vigilant because most of these account providers do not disclose the risks associated with these accounts when deposits are made. The regulatory authority also urged investors to be careful of any solicitations they may receive for investing in such platforms.
The authority said that people should assess the platforms first, along with their offerings because a number of platforms that provide interest-bearing crypto accounts are offering unregistered securities. In addition, the DFPI also issued a cease and desist order to BlockFi and Voyager Digital in order to halt their services in California.
Voyager files for bankruptcy
It is important to note that crypto lending platforms that usually offer these interest-bearing accounts are in trouble because of the tough market conditions. Both Voyager and BlockFi are included in this list and the problems are such that the former has had to file for bankruptcy.
It had all started with Celsius Network, which had first paused withdrawals and transfers between accounts, as mentioned by the DFPI.
As far as Voyager Digital is concerned, it has come up with a recovery plan that will compensate customers through a combination of VGX tokens, cryptocurrencies, and shares of a company that has been recently established.
The users of the exchange will also receive the proceeds that Voyager Digital will get from its loan to Three Arrows Capital, the crypto hedge fund that has also filed for bankruptcy. The company said that the amount the customers will receive will depend on what Voyager gets from 3AC, but not all of the exchange’s depositors are happy with this move.
A Twitter user even referred to the warnings of the DFPI regarding the disclosure of risks by these crypto platforms. Users have complained that the exchange had not issued any warning about freezing their assets and had used them for raising their value.