On July 12, the California Department of Financial Protection and Innovation (DFPI) announced that it is investigating multiple crypto companies that offer interest-bearing crypto asset accounts. These accounts allow users to lend crypto to the company in return for interest.
The DFPI warned consumers that as a result of the current market conditions, some of these interest-bearing crypto companies are preventing customers from withdrawing from and transferring between their accounts. The DFPI advised that some of these companies may not have adequately disclosed the risks customers face when they deposit crypto assets onto these platforms. Additionally, in two recent DFPI actions against popular crypto-interest-bearing accounts, the DFPI found that the crypto-interest accounts were unregistered securities. Thus, consumers of these accounts should exercise extreme caution before responding to any solicitation offering investment or financial services.
The DFPI alert added that the Department is actively investigating whether other crypto-interest account providers are violating laws under the Department’s jurisdiction.
Putting It Into Practice: 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. 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.