California’s Financial Protection and Innovation department is investigating whether firms suspending transfers and withdrawals by customers violated state laws.
Several crypto lenders based in the US are under the scanner following a succession of such measures taken by prominent lenders of user accounts.
The firms under investigation were not named by the department in California. But it revealed that it was keeping an eye on several companies that deal in cryptocurrency asset accounts that bear interest, also known as crypto-interest accounts. They were also looking into service providers who may have not fully disclosed the risks faced by customers who deposited cryptocurrency assets on the platform of lenders.
California’s Move Comes After Several Crypto Lenders Have Frozen Transfers And Withdrawals
Several leading crypto lenders have stopped transfers and withdrawals in the fast months. These firms are facing a severe liquidity crisis that has been spurred by the dramatic downturn witnessed in the market. Cryptocurrency prices have plunged to abysmal lows since December 2020 with Bitcoin going below $20,000 multiple times in June alone.
The investigation by authorities in California was preceded by warnings by politicians and top regulators about the hazards associated with cryptocurrency lending.
Sen. Elizabeth Warren issued a warning in June about absurd claims of high growth rates of double digits that often turned out to be false. She wrote that many customers have been scammed by crypto firms through such absurd claims of unbelievably high returns.
She revealed that insiders were profiting from this gullibility while common investors were being fleeced all around.
California’s DFPI has investigated and initiated action against multiple cryptocurrency companies in recent months, including Voyager Digital and BlockFi. The department discovered that several crypto interest accounts linked to these platforms were unregistered securities.
Security registration ensures that investors are sufficiently informed to make the right decision on investments that are riskier than normal, including crypto interest accounts.