Cryptocurrency Lending Firm Settles for $100m After SEC Regulatory Action
A cryptocurrency lending firm has agreed to a settlement of $100 million after facing regulatory action from the US Securities and Exchange Commission (SEC). This marks a significant development as it is the first-of-its kind action taken by the SEC against a company in the cryptocurrency lending space.
SEC Charges BlockFi Lending
The SEC charged BlockFi Lending with failing to register the offers and sales of its retail lending product, the BlockFi Interest Accounts (BIAs). Additionally, the firm was found to be in violation of the registration provisions of the Investment Company Act of 1940.
Issue with BlockFi Interest Accounts
The crux of the problem lies in the BIAs offered by BlockFi, which allowed individuals to lend their cryptocurrency assets to the firm in exchange for variable monthly interest payments. The SEC determined that BIAs should be classified as securities, thus requiring registration from BlockFi or an application for an exemption, neither of which were done by the company.
Furthermore, the SEC found that BlockFi had over 40% of its total assets, excluding cash, invested in securities, including loans of crypto assets to institutional borrowers.
False and Misleading Statements
The SEC also highlighted that BlockFi had made false and misleading statements on its website for over two years regarding the risk level associated with its loans and lending activities.
Compliance and Transparency
Gurbir Grewal, director of the SEC’s Division of Enforcement, emphasized the importance of compliance with federal securities laws for crypto lending platforms. He stressed the need for adherence to registration and disclosure requirements to provide investors with the necessary information and transparency for making informed investment decisions in the crypto asset space.
Settlement Terms
As part of the settlement, BlockFi has agreed to pay a $50 million penalty to the SEC within 60 days. The company will also cease its unregistered offers and sales associated with BIAs and work towards aligning its business practices with the requirements of the Investment Company Act.
Moreover, BlockFi will pay an additional $50 million in fines to 32 states to settle similar charges. The firm’s parent company will register under the Securities Act of 1933 for the offer and sale of a new lending product.