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Highlights
- The Securities and Exchange Commission fined crypto company BlockFi Lending LLC US$100 million for violating the securities registration provisions.
- The New Jersey-based company will pay the highest ever fine by a cryptocurrency company to settle charges levied by the SEC and 32 states.
- The case pertains to the selling of BlockFi Interest Accounts’ (BIAs). Now, it plans to launch a new lending product called BlockFi Yield under the Securities Act 1933.
The US Securities and Exchange Commission (SEC) on Monday fined crypto company BlockFi Lending LLC a record US$100 million for violating securities registration provisions under the Investment Companies Act of 1940.
The New Jersey-based company will now pay the highest ever fine by a cryptocurrency company. Half of the amount will go to SEC and the rest to 32 states to settle the charges.
Besides the fine, the company agreed to cease the unregistered offer and sale of its lending product BlockFi Interest Accounts (BIAs) to new US investors. However, it will continue with the existing account, but the current account holders cannot invest more in the product.
According to the SEC, BlockFi Lending LLC and its affiliates held around US$10.4 billion in assets from some 400,000 US investors as of December 8.
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BlockFi had begun selling its unregistered BIA products on March 4, 2019. The investors had lent their crypto assets to BlockFi, which promised them a variable monthly interest.
BIAs are securities that must be registered under the applicable law, but the company failed to register or qualify for an exemption from registration. The unregistered company had issued securities for 18 months, holding more than 40% of its total assets in investment securities.
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In its order, the SEC noted that the company understated the risks involved with the product and made misleading statements that it was over-collateralized. Last year, New Jersey and several other states ordered BlockFi to stop selling BIAs to investors.
Meanwhile, BlockFi has neither accepted nor denied the charges but agreed to comply with the order, stressing its "pioneering efforts in securing regulatory clarity for the broader industry and clients."
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The company plans to sell a new product, BlockFi Yield
BlockFi Lending LLC said it would sell a new lending product called BlockFi Yield after meeting the guidelines under the Securities Act 1933. It also said that it would bring its business in compliance with the provisions of the Investment Company Act within 60 days.
SEC has stepped up its scrutiny of crypto products to protect investors' interests. Last year, in September, the crypto exchange Coinbase also came under the lens when it planned to bring in a similar product. The SEC said the product does not fall under the definition of security.
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SEC chair Gary Gansler said that he plans to bring the crypto companies under the ambit of securities laws, including the Investment Company Act of 1940 and the Securities Act of 1933.
In a separate statement, the North American Securities Administrators Association said that the crypto industry might face more regulatory hurdles in future.
