A cryptocurrency management company has agreed to pay a $100 million settlement to the Securities and Exchange Commission.
The SEC charged BlockFi, a cryptocurrency lending and management platform, with failing to register the offers and sales of its lending product, forcing it to pay a $100 million settlement, the largest for any cryptocurrency company.
“This is the first case of its kind with respect to crypto lending platforms,” SEC Chairman Gary Gensler said in a press release. “Today’s settlement makes clear that crypto markets must comply with time-tested securities laws.”
“It further demonstrates the commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws,” Gensler added.
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BlockFi reportedly misled its investors about the level of risk they were taking and specifically did not provide sufficient information for investors to make adequately informed decisions about their investments, the SEC said.
There were also problems with how the company operated. The way BlockFi managed its assets placed it at risk of being unable to pay investors interest or returning any loaded cryptocurrency if there was a negative return on assets, the SEC said.
The company also failed to register its products.
As a result of the violations, the SEC ordered BlockFi to cease its offer and sale of BlockFi interest accounts and bring its business within the limits of federal investment laws, specifically the Investment Company Act of 1940. The company agreed to comply and said it would pay $50 million to the SEC in its settlement. BlockFi also noted that it would pay an additional $50 million to the states it registered in to pay off any relevant fees.
The company also intends to register under the Securities Act of 1933, allowing it to sell BlockFi Yield, a new interest-bearing security, according to its founders.
BlockFi noted the “landmark resolution” on its social media and said the decision would provide “clarity on and a pathway forward toward crypto interest-bearing securities.”
We have entered into a landmark resolution with Federal and State regulators that provides clarity on and a pathway forward for crypto interest-bearing securities. pic.twitter.com/raIikoTNE6
— BlockFi (@BlockFi) February 14, 2022
BlockFi was one of the first cryptocurrency companies to receive a state-level license for cryptocurrency-backed loans in 2018. BlockFi had an estimated 400,000 customers in the United States and more than $10 billion in assets as of December, according to the SEC.
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The settlement is likely the first of many. Gensler expressed an interest in cracking down on everything from cryptocurrency to meme stocks in an interview with Bloomberg. The SEC chairman has already clashed with cryptocurrency company Coinbase during his testimony before the Senate banking committee in September 2021.
