Texas regulators alleged on Thursday that BlockFi’s Interest Account (BIA) product is a security under state rules in the latest blow to the crypto lender’s business model.

The Texas State Securities Board (TSSB) filed for a cease-and-desist order against BlockFi, BlockFi Trading and BlockFi Lending. The cease-and-desist hasn’t taken effect, and won’t unless a judge signs off after a hearing in October, CoinDesk has learned. The filing gives the company a chance to formally respond to the allegations. The company is allowed to continue operations until the hearing.

“This legal action affords BlockFi and its affiliates the opportunity to respond to our allegations and present admissible evidence,” Joe Rotunda, TSSB’s director of enforcement, said. He shared a copy of the notice with CoinDesk.

The proposed cease-and-desist order would prevent BlockFi from offering its BIA product without at least registering with the state’s securities regulator.

Texas joins Alabama and New Jersey in alleging that the crypto lending platform’s interest-bearing product might violate state securities laws. 

While a spokesperson could not immediately be reached for comment, the company tweeted, “we firmly believe that the BIA is lawful” after the publication of this article.

Like New Jersey, Texas is arguing the fact that the company’s customers place their cryptocurrencies in the lending platform’s control for BlockFi to invest and commingle with other customer and corporate funds may violate the state’s securities laws. 

“The BIAs constitute investment contracts, notes, or evidences of indebtedness regulated as securities as that term is defined by Section 4.A of the Securities Act,” the filing said.

Texas said it notified BlockFi in late April that its lending product might be violating state securities rules. The lender continued to illegally offer BIA in Texas, TSSB alleged. 

TSSB said BlockFi has at least 25,000 clients in Texas with $691 million in total assets.

In a tweet responding to the allegations from Alabama’s regulator, BlockFi said its interest accounts aren’t securities.

Read the filing here:

UPDATE (July 22, 2021, 22:12 UTC): Updated with a tweet from BlockFi; further clarifies that Texas filed for a cease-and-desist but it has not yet taken effect.