The Arizona Corporation Commission issued a warning to investors about digital-asset financial services companies offering interest-bearing crypto-asset accounts.
The AZCC says that with crypto-interest accounts, customers lend crypto assets to the company and, in exchange, receive interest paid in crypto assets.
As a result of the crypto market downturn, some companies are preventing account holders from taking money out of their accounts and transferring it between accounts. The AZCC says that bankruptcy filings by Celsius Network and Voyager Digital highlight this issue.
The Corporation Commission’s Securities Division warns investors that some crypto-interest account providers are not being completely honest with their investors. The Division says that account providers may not have sufficiently disclosed the risks that customers face when they deposit crypto assets onto these platforms.
“Some companies may materially overstate the degree to which their collateral practices protect their ability to pay investors the stated return,” the AZCC said in a press release.
In a recent action against BlockFi Lending, LLC, the Commission found that some crypto-interest accounts were unregistered securities.
The securities registration exists to ensure investors receive all the information they need to evaluate whether or not to enter into these crypto-interest account arrangements, including risks taken with deposited funds.
The Commission is investigating “whether other crypto-interest account providers are violating laws under the Commission’s jurisdiction,” it reports.
Here are some of the issues that the AZCC lists about crypto-interest providers:
- They are not governed by the same rules and protections as banks and credit unions, which are required to have deposit insurance.
- They are unpredictable, volatile, and sometimes illiquid.
- They might become insolvent or go bankrupt.
- Their crypto assets may not be tradable anywhere.
- There may be changes in regulation that could restrict use and exchange of the digital asset.
- Their platforms may be subject to theft, technical glitches, or hackers.
- They may be located outside the United States, so your ability to take legal action may be limited or subject to foreign laws and rules.
- The Corporation Commission urges investors to be cautious before responding to any solicitation offering a return on digital assets. Investors can find a list of companies and individuals sanctioned or currently facing sanctions for crypto-related investment activity at the Securities Division’s enforcement section of its website.
Arizona crypto-interest account investors can file complaints with the Commission’s Securities Division at www.azcc.gov/azinvestor.
