A leading cryptocurrency lending firm has recently reached a settlement of $100 million following a groundbreaking regulatory action taken by the US Securities and Exchange Commission (SEC). BlockFi Lending, the company in question, was charged by the SEC for failing to register the offers and sales of its retail lending product, as well as violating the registration provisions of the Investment Company Act of 1940.
The focal point of the issue revolves around BlockFi’s BlockFi Interest Accounts (BIAs), which allowed members of the public to lend their cryptocurrency assets to BlockFi in exchange for variable monthly interest payments. According to the SEC, the BIAs should have been considered securities under the law, necessitating registration from BlockFi or an exemption application, which the company failed to do.
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. The regulator also highlighted a misleading statement on BlockFi’s website regarding the risk level associated with its loans and lending practices.
In response to the charges, BlockFi has agreed to pay a $50 million penalty to the SEC within 60 days, cease its unregistered offers and sales related to BIAs, and work towards aligning its operations with the requirements of the Investment Company Act. Additionally, the company will pay $50 million in fines to 32 states to settle similar charges.
Gurbir Grewal, director of the SEC’s Division of Enforcement, emphasized the importance of crypto lending platforms complying with federal securities laws to provide investors with the necessary information and transparency for making informed decisions in the crypto asset space.
As part of the settlement, BlockFi’s parent company will register the offer and sale of a new lending product under the Securities Act of 1933. This resolution serves as a stark reminder for cryptocurrency lending platforms to adhere to regulatory requirements and prioritize investor protection in the evolving digital asset landscape.