Crypto Lender BlockFi Fined $100M By US SEC, 32 States

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BlockFi, a well-known cryptocurrency lender, will pay $100mn in penalties for failing to register its crypto lending product with the appropriate authorities. The company will pay $50mn to the US Securities and Exchange Commission (SEC) and another $50mn to be disbursed to 32 US states that brought charges against it.

  • BlockFi is a platform allowing users to lend their crypto holdings to other crypto traders at interest rates significantly higher than obtainable with traditional banks and lending services. It began offering crypto-funded interest accounts in 2019 and managed nearly $15bn in assets at its peak in 2021.

 

  • BlockFi acted like a bank or money manager but without the proper registrations and stringent requirements that traditional financial institutions adhere to. Hence, the US SEC charged the company with violating securities laws. 32 US states also brought similar lawsuits and will settle for a $50mn fine. BlockFi said it now intends to register with the SEC the sale of any interest-bearing token.

 

  • $100mn represents the second-biggest US government penalty levied in a crypto case. Interestingly, it’s equal to what the Commodity Futures Trading Commission (CFTC) fined BitMex, a crypto exchange, for operating in the US without proper permissions last year. The highest on record was a $110mn fine for BTC-e, a now-defunct crypto trading platform, in 2017.

 

  • The SEC and CFTC have collected a steady stream of fines (totaling over $2bn) from crypto businesses since 2009 when Bitcoin launched. Before BlockFi, the SEC’s highest crypto fine was $19mn paid by Telegram Group, the eponymous chat app owner, following its botched token sale.

Along with charges of violating securities laws, the SEC also accused BlockFi of lying to customers about the level of risk in its loan portfolio and lending activity. BlockFi will pay the fine but not admit any wrongdoing concerning the SEC’s allegations.

  • “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,” SEC Chair Gary Gensler said in a statement. Gensler, a Biden appointee, has taken a stricter stance on crypto industry regulations since coming into power.

BlockFi is among the cohort of companies riding the cryptocurrency boom. The New York-based company has raised over $500mn from VCs, last valued at $3bn. Investors include Peter Thiel’s Valar Ventures, Bain Capital Ventures, Tiger Global, and DST Global.

As of March 2021, when it last raised funding, BlockFi said its monthly revenue exceeded $50mn. It’s unclear if that figure has grown further or decreased, considering the recent beating the general crypto market has taken.

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