SEC settles with Linus Financial over unregistered crypto lending

The SEC settled with Nashville-based Linus Financial, Inc. for not registering its crypto lending product, appreciating its cooperative stance and swift corrective measures.

The Securities and Exchange Commission (SEC) settled charges against Linus Financial, Inc., stemming from its failure to register offers and sales related to its crypto lending product, the Linus Interest Accounts. The regulator opted against imposing civil penalties, citing Linus Financial’s cooperation and immediate rectification steps.

In March 2020, Linus Financial introduced the Linus Interest Accounts in the U.S., allowing investors to exchange U.S. dollars for a promise of interest. These funds were converted into cryptocurrency assets, with Linus Financial pooling them and overseeing their utilization to generate revenue for both the company and the interest payments for investors. The SEC determined these accounts were marketed and sold as securities, making their offers and sales liable for SEC registration. However, Linus Financial had not secured the required registration.

Upon recognizing the oversight, particularly after the SEC raised concerns over a similar crypto asset product, Linus Financial voluntarily halted the offer of the Linus Interest Accounts to prospective investors on March 25, 2022. The company also prompted its existing clients to retrieve their investments by the end of April 2022, ensuring all funds were returned.

While not conceding to or challenging the SEC’s findings, Linus Financial has agreed to an order preventing it from infringing on the Securities Act of 1933’s registration provisions.

Recently, the SEC’s actions have been questioned due to the leadership of its chair, Gary Gensler. Lawmakers have introduced the SEC Stabilization Act, which aims to remove Gensler from his position and restructure the commission. Critics argue that Gensler’s tenure has highlighted a flaw in the SEC’s structure, giving the Chair too much discretion and rendering other commissioner positions redundant.

One of the concerns critics raise is the SEC’s use of enforcement actions to create laws instead of clear regulations. However, defenders of the SEC, such as former SEC Commissioner Robert J. Stark, argue that the agency is following the law and applying basic requirements outlined in federal securities laws to new markets and technologies.

The SEC has also faced criticism regarding its regulatory framework for cryptocurrencies. Justin Sun, the founder of TRON, has lashed out at the SEC, claiming that its charges are unfounded and that the regulatory framework for crypto needs improvement. Sun has expressed his willingness to engage with regulatory authorities globally to develop open standards for dealing with and regulating the cryptocurrency business.