Crypto Start-up BlockFi Agrees to Pay $100M in a Row With the SEC and 32 States
Crypto start-up BlockFi has agreed to pay $100M to settle charges with the SEC and 32 States. The charges relate to the firm’s retail crypto lending product not being listed as a security with the SEC. Additionally, the firm has revealed that it is applying to list its new savings product with the SEC.
SEC Fines BlockFi $100M for Not Registering Its Lending Product
Crypto start-up BlockFi has agreed to settle SEC and 32 US States charges by paying a $100M fine. The firm backed by Silicon Valley investor Peter Thiel operates akin to traditional banks but digitally. Its popular savings product allows users to accrue interest from their crypto holdings.
The firm gives annual yield percentages of up to 9.25%, which is way higher than regular savings accounts from financial institutions. The firm explains that it is willing to keep paying such high rates as institutional investors pay more on their loans.
However, even though cryptocurrency is not regulated, regulators look closely into crypto services resembling traditional finance services. BlockFi is among such projects and has fallen under the scrutiny of regulators. On Monday, the SEC revealed that it was charging BlockFi for failing to register its crypto lending product.
BlockFi’s Expensive Mistake
BlockFi’s crypto lending products resemble traditional finance systems, but it is riskier since it uses highly volatile assets. According to the SEC, the platform has violated its regulations by failing to register it with them. The Commission explained that BlockFi’s lending product falls under the Investment Company Act of 1940.
Following the Charges, BlockFi agreed to pay $50M to the SEC without either accepting or denying liability. It also agreed to pay another $50M to the 32 States against it.
According to SEC Chair Gary Gensler, BlockFi’s case was the first probe involving crypto lending platforms. He added that other crypto lenders should learn to comply with the country’s time-tested securities laws.
What Next After the Charges Against BlockFi?
Following the charges against the platform, no new user will open a new interest trading account with BlockFi. However, the existing clients will continue receiving rewards on their holdings but are barred from adding new assets to their accounts.
Now, BlockFi claims that it is applying to register its services with the SEC to offer its new savings product, BlockFi Yield. It added that it plans to move the existing US users to the new platform unless they decide against the idea.
According to BlockFi CEO and founder Zac Prince, since the launch of the platform, it has been clear that good relations with regulators will be essential. He added that their latest milestone to enhance regulatory clarity shows their pioneering efforts in legal compliance to benefit the industry and investors.
The SEC warns other platforms like BlockFi to comply with security laws. The Commission’s Director, Gurbir S.Grewal, asks platforms similar to BlockFi to register as soon as possible. Per Bloomberg, the SEC is already grilling crypto lending platforms Celsius, Gemini, and Voyager Digital. This development shows the regulators’ efforts in making the industry safer.
