BlockFi Moves to Dismiss Securities Registration-Related Complaint

The parties agreed to postpone a status conference this week after defendant BlockFi Inc. and its subsidiaries moved to dismiss a securities fraud complaint brought by several people enrolled in its BlockFi Interest Accounts (BIAs). According to the class action suit, the cryptocurrency-oriented financial services company injured BIA participants by not registering the BIA as a “security” with the SEC and a California securities regulator, among other missteps.

The motion to dismiss explains that 2017-founded BlockFi began to offer BIAs in 2019. The interest accounts permitted holders to earn interest returns on their cryptocurrency while BlockFi loaned their principle to institutional and corporate borrowers to generate that interest.

The complainants argued, on behalf of a putative class of BIA holders, that they suffered damages as a direct result of BlockFi’s failing to register BIAs with the relevant regulators. In the amended complaint, purportedly filed in response to BlockFi’s dismissal bid, the plaintiffs added claims for “a menagerie of misstatements, consumer, and common law claims,” raising the total number of counts from three to eleven.

The dismissal filing argues that there are three reasons the court should toss the case, starting with the plaintiffs’ failure to plead two essential constitutional standing requirements: injury in fact and causation. Only supplying “unsupported assertions of damages and purported risks that never materialized,” the plaintiffs actually admit that they received interest payments from their BIAs on demand, thus failing to plead injury.

In addition, the motion says the is operative pleading fails to state a claim for federal securities law violations not only because of its failure to plead injury, but also because it does not allege any material misstatements, and it lacks allegations supporting the elements of scienter, loss causation, and reliance.

The filing also points to California and New Jersey’s “Blue Sky” laws, which limit securities recoveries to claims of offers to tenders or tenders. Here, the amended complaint contains neither, BlockFi claims. Lastly, BlockFi asks the New Jersey federal court to strike the class allegations for inability to demonstrate that class requirements can be met.

With the parties’ joint filing to the court, the status conference will be postponed until the court rules on BlockFi’s motion to dismiss.

The plaintiffs are represented by Bursor & Fisher P.A. and Squitieri & Fearon and BlockFi by Sullivan & Cromwell LLP.