Crypto platform BlockFi to pay regulators $100 million, half in Texas and other states

Cryptocurrency platform BlockFi has agreed to pay the Securities and Exchange Commission and the states $100 million for failing to record offers and sales of its retail crypto lending product.

Half of the $100 million will go to the SEC, while the other half will go to all 50 states, plus Washington, DC, Puerto Rico and the US Virgin Islands if the governments take steps to participate in the settlement.

Texas has already acted and received $943,396, which will go to its general fund, according to the Texas State Securities Board. Over 36,400 Texans had invested over $688 million in BlockFi by the end of 2021.

The New Jersey-based company offered accounts to customers who loaned their digital tokens to BlockFi, which then loaned them to institutional customers. In exchange, account users were promised a variable monthly interest payment.

However, the SEC found that these BlockFi interest accounts are classified as securities under applicable law, which means BlockFi had to file them with the SEC, which it had not done, according to the law. DRY.

The SEC also found that BlockFi operated for 18 months as an unregistered investment firm and made “false and misleading statements” on its website regarding the risk of its loan portfolio and lending activity.

BlockFi has neither admitted nor denied the SEC’s findings, but has agreed to halt the sale of its interest accounts, which it first offered in 2019, and to work towards bringing the SEC into compliance. its activities with the rules of the SEC. It plans to file with the SEC a new interest-bearing crypto security called BlockFi Yield that will allow customers to earn interest on their crypto assets.

Zac Prince, CEO and Founder of BlockFi, said in a statement that the settlement is “another example of our pioneering efforts to ensure regulatory clarity for the entire industry and our customers, just as we have done for our first product – the crypto-backed lend.”

“From the day we launched BlockFi, we always knew that strong engagement with regulators would be essential for the adoption of cryptocurrency-powered financial services,” he said.

The case was not about the theft or misuse of funds, which means BlockFi account owners will not see any of the settlement funds because they were not financially affected. This was a “pure regulatory matter” that was “just about making sure BlockFi is complying with the law,” said Joe Rotunda, director of the Texas State Securities Board’s enforcement division.

“We wanted to make sure that whatever we did didn’t negatively impact existing investors,” Rotunda said. “If we knew BlockFi wouldn’t be able to return money to investors, we would have pursued other avenues.”

This is the “first such case involving crypto lending platforms,” SEC Chairman Gary Gensler said in a statement. “Today’s regulations make it clear that crypto markets must comply with proven securities laws, such as the Securities Act of 1933 and the Investment Companies Act of 1940.”

The ruling is a signal to similar crypto platforms that they may need to register their offerings with the SEC or risk an equally hefty fine.

“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and comply with federal securities laws,” a statement from Gurbir S. Grewal said. , director of the SEC’s Enforcement Division.

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