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The US Securities and Exchange Commission (SEC) has found that crypto lender BlockFi operated for 18 months as an unregistered investment company.
The company offered BlockFi Interest Accounts (BIAs) — where users lent crypto assets back to BlockFi for a variable monthly interest payment — which the SEC found were securities, and therefore the BlockFi needed to register with the regulator.
Along with the findings, BlockFi has agreed to pay a $50 million penalty to settle with the SEC and another $50 million to settle similar charges in 32 states. The company will also halt offering unregistered products, seek registration of a new lending product, and has 60 days to bring its business into compliance.
BlockFi was also found to have made a false and misleading statement for over two years on its site related to the level of risk in loan portfolio and lending activity.
“This is the first case of its kind with respect to crypto lending platforms,” SEC chair Gary Gensler said.
“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.”
The SEC added that the rest of the crypto lending ecosystem should “take immediate notice of today’s resolution” and comply with US securities laws.
BlockFi framed the announcement as being the first company under a “new regulatory framework for crypto sector”.
“From the day we started BlockFi, we have always known that strong engagement with regulators would be critical for the adoption of financial services powered by cryptocurrencies. Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product — the crypto-backed loan,” CEO and founder Zac Prince said.
“We intend for BlockFi Yield to be a new, SEC-registered crypto interest-bearing security, which will allow clients to earn interest on their crypto assets.”
The company added that existing customers will keep their accounts, but they cannot add to it, and users will be shifted across to the Yield product unless they tell the company not to.
Users outside the US can continue using BIAs as they always have.
