BlockFi, the cryptocurrency lending company, has agreed to pay a $50 million fine to the SEC for misleading investors and not declaring its lending products as securities. The company will pay a further $50 million to settle similar charges in 32 different US states.
The decision must come as quite a blow to the cryptocurrency lending company, although it has not as yet admitted it was at fault. BlockFi has also agreed to comply with a cease-and-desist order to stop offering its lending services to US based citizens.
According to chairman Gensler of the SEC in an article written on Compliance Week:
“This is the first case of its kind with respect to crypto lending platforms. 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, in a statement . “It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
On the perceived BlockFi violations, the SEC said that BlockFi’s lending products were investment contracts, and that the company had not registered them as such, nor had it filed for an exemption. The SEC also stated in the press release that BlockFi had operated for more than 18 months as an unregistered investment company, saying:
“it issued securities and also held more than 40 percent of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers,”
BlockFi issued its own press release in order to clarify its position. It stated that it had cooperated with the SEC, and it had applied remedial action based on the SEC findings.
The company did not however treat the SEC findings as a negative, and stated that the settlement was:
“a landmark resolution with federal and state regulators, that provides regulatory clarity and a path forward for clients across the United States who want to earn interest on their crypto assets,”
Investors who already hold assets on the BlockFi platform will be allowed to continue to hold them there as per the SEC ruling. However, they will not be able to add to them, and no more US citizens will be able to open accounts with the cryptocurrency platform.