The Securities and Exchange Commission and regulators from 32 states have reached a record $100 million settlement with the cryptocurrency company BlockFi Lending LLC for selling unregistered securities over nearly three years.
Under the agreement, announced Feb. 14, BlockFi will pay $50 million to 32 states and another $50 million to the SEC. BlockFi will no longer offer the interest-bearing accounts in the U.S. until they are properly registered. As reported by The Wall Street Journal, BlockFi allowed nearly 600,000 users to earn interest by lending their holdings to other traders without seeking approval to act as a bank or money manager. The company’s parent firm, BlockFi Inc., plans to sell a new interest account product, BlockFi Yield, after properly filing with regulators.
According to the Wisconsin Department of Financial Institutions, one of the state regulating agencies that took action against BlockFi, the investigation into the company began at the beginning of 2021. “As alleged in the state securities actions, BlockFi promoted its [interest accounts] with promises of high returns for investors who purchased the lending products,” DFI stated. “It took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use the digital assets to generate a return and pay investors their promised interest.”
BlockFi Lending LLC held as much as $14.7 billion in assets at its peak last year. “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,” said SEC Chair Gary Gensler. Last summer, Gensler said the crypto market wasn’t sufficiently protecting investors and operated “like the Wild West.”
BlockFi never admitted nor denied the SEC’s findings.