According to a report released by the U.S. Securities and Exchange Commission (SEC), popular cryptocurrency exchange and lending platform BlockFi has agreed to pay $100 million in a settlement over claims that the company violated securities law through its interest account offering. Per the report, $50 million will be paid to the SEC and another $50 million will be paid to various state regulatory bodies, making it the largest recorded penalty ever incurred by a crypto firm.
In 2019, BlockFi officially launched it’s interest-bearing account, in which they pay users interest on deposited cryptocurrencies by lending the assets to institutional and corporate borrowers with high collateral. The SEC charged the company with violating the registration provisions of the Investment Company Act of 1940. The order also found that BlockFi operated for more than 18 months as an unregistered investment company, as they issued securities and held more than 40% of their total assets in investment securities (including loans of crypto assets to institutional borrowers). Finally, the order found that BlockFi made a false and misleading statement for more than two years on its website about the level of risk associated with their loan portfolio and lending activities.
According to SEC Chairman Gary Gensler, “this is the first case of its kind with respect to crypto lending platforms. Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
In addition to the $100 million fine, BlockFi agreed to cease sales of its unregistered lending product. According to an email sent to U.S. customers, “existing U.S. BlockFi Interest Account (BIA) clients will maintain their accounts and will continue to receive interest as they always have. BIA clients based in the United States may not add further assets into their BIAs.” To replace their current interest-bearing account, BlockFi announced their intent to register a new, compliant lending product, called BlockFi Yield, which it says would be the first SEC registered crypto interest-bearing security. “Once the BlockFi Yield registration statement is declared effective by the SEC,” BlockFi said in an email to users, “BIAs of U.S. clients will be exchanged for BlockFi Yield and you will be able to add incremental assets to your account.”
Despite these penalties, the BlockFi team appears optimistic about improved regularity clarity. “We are pleased to share that today we have reached an agreement with U.S. federal and state regulators,” they said in an email this week, “outlining a clear path forward for BlockFi and for Americans to earn crypto interest.”