Several U.S.-based crypto lenders is under fire when investigated by the California Department of Financial Protection and Innovation (DFPI) after a series of prominent lenders indefinitely halted withdrawals and transfers between user accounts, according to a press release on Tuesday.
The department said it is eyeing “multiple” companies that “offer customers interest-bearing crypto asset accounts,” or crypto-interest accounts, and service providers that “may not have adequately disclosed risks customers face when they deposit crypto assets onto [lenders’] platforms.”
Over the past few months, several prominent crypto lenders have frozen withdrawals and transfers due to liquidity crises aggravated by a dramatic market downturn. This has caused crypto prices to plummet to their lowest levels since Dec. 2020, with bitcoin falling below $20,000 several times in June.
On top of that, California investigation follows public comments from top regulators and politicians warning them about the risks of crypto lending.
U.S. Senator Elizabeth Warren (D-Mass.) issued an email statement in June warning the public that crypto lending platforms’ claims of double-digit rates were often “too good to be true.”
“Too many crypto firms have been able to scam customers with too-good-to-be-true claims about safe sky-high returns, leaving ordinary investors holding the bag while insiders make off with their money,” Warren wrote.
In recent months, several crypto companies, including BlockFi and Voyager Digital have been investigated by the California DFPI.
The department said, securities registration is essential to ensure that investors receive adequate information before they decide on riskier-than-average investment opportunities such as crypto-interest account arrangements.
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