The Securities and Exchange Commission (SEC) and 32 state securities regulators today jointly announced a $100 million settlement with BlockFi Lending LLC over the sale and marketing of unregistered blockchain interest and lending products.
To settle the charges, BlockFi agreed to pay a $100 million penalty, cease its unregistered offers and sales of the lending product, BlockFi Interest Accounts (BIAs), and attempt to register its products within 60 days.
BlockFi’s parent company also announced that it intends to register the offer and sale of a new lending product under the Securities Act of 1933.
"This is the first case of its kind with respect to crypto lending platforms," SEC Chairman Gary Gensler said. "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."
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said similar firms with unregistered crypto products “like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws."
According to the SEC’s order, from March 4, 2019, until today, BlockFi offered and sold BIAs to the public. Through the interest accounts, investors lent crypto assets to BlockFi in exchange for the company’s promise to provide a variable monthly interest payment.
The order found that BIAs are securities under applicable law, and the company therefore was required to register its offers and sales of BIAs, but failed to do so or to qualify for an exemption from SEC registration.
Additionally, the order found that BlockFi operated for more than 18 months as an unregistered investment company because it issued securities and also held more than 40% of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers.
"The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity," the SEC said.
Without admitting or denying the SEC’s findings, BlockFi agreed to cease offering or selling BIAs in the United States and agreed to an order that it stop violating the registration and antifraud provisions of the Securities Act and the registration provisions of the Investment Company Act.