The Texas State Securities Board has filed for a hearing with the potential to impose a cease and desist order against crypto lending firm BlockFi for not offer a security licensed at the state or federal level.

According to a Thursday filing, the state regulator will be holding a hearing related to allegations BlockFi is illegally funding its crypto lending operations and proprietary trading through the sale of unregistered securities. Should the judge accept that the platform's accounts earning interest on crypto represent unlicensed securities, BlockFi may be discipline to a end and desist order.

Should the judge grant the order at the October. 13 virtual hearing, BlockFi and its affiliates BlockFi Lending and BlockFi Trading would likely exist required to stop offering BlockFi Involvement Accounts in the state without registering with a local regulator or the U.South. Securities and Substitution Commission. The filing claims that BlockFi has more than than $691 million assets under management from roughly 25,000 Texas residents as of June 9.

Related: Texas wants to protect privacy elements of blockchain companies, says Blockcap

Texas' Enforcement Division of the State Securities Board notified BlockFi on April 20 that it may non have been in compliance with the state'due south Securities Act with its interest accounts. It alleged in today'south filing that the BlockFi Involvement Accounts were in violation of Section 4.A of the Securities Act, maxim:

"The mere fact an investment is tied to a cryptocurrency, blockchain technology, or some type of digital asset does non remove it from securities regulation if it constitutes an investment contract, note, evidence of indebtedness, or other type of security."

BlockFi is already facing a end and desist club from the New Jersey Bureau of Securities preventing it from onboarding new interest account clients. Today the Alabama Securities Commission as well issued an order giving the platform 28 days to testify cause why it should not be subject to similar regulatory penalties for allegedly selling unregistered securities in Alabama​​. The lending platform has claimed the BlockFI Interest Account is not a security.

Related: Texas regulator allows state-chartered banks to concord Bitcoin

With the exception of BlockFi, Texas has by and large been a state welcoming to crypto and blockchain firms. Governor Greg Abbott has spoken openly most his back up of local laws concerning crypto and blockchain, with lawmakers passing a bill to recognize cryptocurrencies under commercial law in the land in June.

In improver, the state is already home to some major crypto mining firms including Anarchism Blockchain, Argo Blockchain, and Blockcap. Cointelegraph reported last month that miners displaced by regulatory crackdowns in China might be looking at Texas given the state'due south cheap electric costs.