Department of Financial Protection and Innovation

BlockFi to provide over $100K in refunds to California clients

March 28, 2023 Coin Telegraph

Blockfi

At least 111 BlockFi borrowers had continued repaying loans between Nov. 11 and Nov. 22, even though they didn't need to, according to court documents.

Bankrupt crypto lender BlockFi has agreed to refund more than $100,000 to California customers that had continued to repay loans even after a trading halt on Nov. 10 last year.

According to a March 27 statement from California's financial watchdog, the Department of Financial Protection and Innovation (DFPI), its investigation discovered at least 111 borrowers in California paid back roughly $103,471 in loan repayments between Nov. 11 and Nov. 22.

The regulator claimed that BlockFi failed to "provide timely notification to borrowers that they could stop repaying their BlockFi loans."

Californian @BlockFi users: BlockFi to refund over $100k after failing to notify borrowers about halting repayments post-FTX crash. The motion was filed, with a hearing set for April 19, 2023. Updates to follow. More info: https://t.co/bJkiyfgA1b #FTX #BlockFi #CryptoRefund pic.twitter.com/u0QpwY6oou
— CA Department of Financial Protection & Innovation (@CaliforniaDFPI) March 27, 2023

The DFPI claims that borrowers were not notified until Nov. 22 that they could stop repaying their BlockFi Loans "until further notice."

According to documents, BlockFi requested permission from the bankruptcy court to return these payments to the borrowers in a motion filed with the court on Feb. 24, 2023.

The refunds will be able to go ahead if the motion is approved, with a hearing scheduled for April 19.

*Excerpt from the DFPI agreement filed in court. Source: DFPI*

Meanwhile, the DFPI said BlockFi has agreed to an "interim suspension" of its California Financing Law (CFL) license while "the bankruptcy and revocation actions are pending."

"If this motion is granted BlockFi agrees to direct the Servicer to timely return borrowers' payments, including interest and late fees and all funds paid following the November 10th platform pause," according to the DFPI documents.

Unless otherwise ruled by the bankruptcy court, the regulator said BlockFi's agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and "not charge, levy, or assess any late fees associated with any payments, including at maturity."

BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have become delinquent or defaulted on or after Nov. 11, 2022, and will not take “any action that may harm California residents’ credit scores on such loans.”

According to the DFPI, Commissioner Clothilde V. Hewlett previously suspended BlockFi's lending license for 30 days beginning on Nov. 11, 2022 and moved to revoke BlockFi's CFL license on Dec. 15, 2022.

BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or Interest Accounts on Nov. 10, citing a lack of clarity around the FTX collapse.

Today, BlockFi filed voluntary cases under Chapter 11 of the U.S. Bankruptcy Code.https://t.co/adaAx6me4r
— BlockFi (@BlockFi) November 28, 2022

By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International filed for bankruptcy with the Supreme Court of Bermuda on the same day.

California regulators order MyConstant to cease crypto-lending services

December 22, 2022 Coin Telegraph

Blockfi

The California DFPI warned in July that it would be cracking down on crypto interest account providers in the state.

The California Department of Financial Protection and Innovation (DFPI) has ordered crypto lending platform MyConstant to cease offering a number of its crypto-related products over alleged state securities law violations.

The DFPI stated in a press release on Dec. 21 that it has ordered MyConstant to “desist and refrain” from offering its peer-to-peer loan brokering service and interest-bearing crypto asset accounts, which it says are in violation of the California Securities Law and California Consumer Financial Protection Law.

The DPFI alleged that MyConstant’s offering and selling of its peer-to-peer lending service called “Loan Matching Service” violates one of the state’s financial codes.

It also alleged that MyConstant engaged in “unlicensed loan brokering,” as the platform induced lenders to lend without proper licenses.

The regulators also had a problem with the crypto lender’s fixed interest-beating crypto asset products, whereby a customer deposits crypto assets (such as stablecoins and fiat) and are promised a fixed annual percentage interest return.

It said that these were examples where MyConstant offered and sold unqualified, non-exempt securities.

In July, the regulator said it was investigating multiple crypto interest account providers to determine whether they are “violating laws under the Department’s jurisdiction.”

DFPI first announced it was investigating MyConstant in a press release on Dec. 5 stating that MyConstant is “not licensed” by DFPI to operate in California.

The recent action comes only a month after the California-based company appeared to have fallen into hard times, announcing on Nov. 17 that “rapidly deteriorating market conditions” prompted heavy withdrawals and that it was “unable to continue to operate our business as usual.”

The platform at the time added that it had limited its business activity, including pausing withdrawals, and that: “No deposit or investment request will be processed at this time.”

The platform has been providing users with updates on its website since then, including an updated plan sent to users on Dec. 15 which includes a financial overview, liquidation schedule, estimated recovery, and next steps.

At the time, the platform said it will continue to administer its crypto-backed loans, including ensuring borrower compliance, processing loan repayments, returning borrowers' collateral (when their loans are paid in full), and liquidating borrowers' collateral in the event of default.

California Launches Crackdown on 11 Crypto Firms Accused of Operating Ponzi Schemes

September 28, 2022 Bitcoin.com

California regulator investigating crypto interest accounts

July 13, 2022 Coin Telegraph

California DFPI

The regulator also said in its view that certain crypto interest account providers were providing unregistered securities, such as BlockFi and Voyager.

The California Department of Financial Protection and Innovation (DFPI) has warned consumers to “exercise extreme caution” when dealing with interest-bearing crypto-asset accounts.

The DFPI stated that it is investigating multiple crypto interest account providers to determine whether they are “violating laws under the Department’s jurisdiction.”

In a July 12 note, the DFPI emphasized that crypto-interest account providers “are not governed by the same rules and protections as banks and credit unions” and that some platforms are “preventing customers from withdrawing from 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.”

“Consumers are encouraged to exercise extreme caution before responding to any solicitation offering investment or financial services,” the DFPI added.

The DFPI also said that in its view certain crypto-interest account providers have been providing unregistered securities, pointing to two cease and desist orders it recently issued to BlockFi and Voyager to stop their offerings in California.

The warning comes in response to crypto interest account providers such as Celsius Network and Voyager Digital both locking up customer assets over severe liquidity issues amid a crypto bear market.

As it stands, customer funds of both platforms have been locked up for several weeks, with the fate of their depositors’ holdings is still unclear.

Voyager has at least outlined a potential recovery plan after post-bankruptcy restructuring, which would allow depositors to receive a combination of Voyager tokens, cryptocurrencies, “common shares in the newly reorganized company,” and funds from any proceedings with 3AC.

However, the company has also tentatively suggested that it may not be able to make all users whole again.

In a blog post on Monday, Voyager stated that “the exact numbers will depend on what happens in the restructuring process and the recovery of 3AC assets.”

Depositors weren’t happy, with Twitter user SizzleMcAffy seemingly echoing the DFPI’s concerns about risk disclosures:

“If I’d known that this platform could freeze my assets without consent, I’d never have opened an account. It’s crazy that you all can use our assets to prop your value up. This kind of behavior is going to severely damage the crypto industry.”

Department of Financial Protection and Innovation

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