August 15, 2022

Volume XII, Number 227

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August 12, 2022

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Crypto Interest-Bearing Accounts, the Next Target?

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.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 202
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Associate

Gabriel is an Associate on the Telecom team and the Co-Lead Associate on the Blockchain and Digital Assets team in the firm’s Washington, D.C. office. He is a Blockchain Law Professional as Certified by the Blockchain Council.

At Sheppard Mullin, Gabriel assists the Telecom team in all aspects of communications law and regulation including, satellites, spectrum, 5G implementation, media companies, and new technologies. He assists the Blockchain and Digital Assets team in legal issues relating to the use of blockchain technology, social media, internet, video games, online gambling,...

202-747-2194
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