Crypto lender BlockFi to pay $100 mln to settle federal charges

abdelaziz Fathi

The US Securities and Exchange Commission said on Monday crypto lender BlockFi has agreed to pay roughly $100 million to settle charges of offering unlicensed interest-bearing accounts for retail investors.

The SEC said the crypto lending platform, backed by billionaire Mike Novogratz’s Galaxy Capital, agreed to settle without admitting or denying the charges.

In Monday’s order, BlockFi will pay a $50 million penalty to the SEC and additional $50 million in fines to 32 states to settle similar charges. The company and its parent also agreed to cease selling its Interest Accounts, which let users earn returns on cryptocurrencies, and attempt to register their business within 60 days.

Several state regulators in the US have already issued cease and desist notices to BlockFi. This coordinated regulatory scrutiny hinged on the firm’s crypto savings and loans product, dubbed BlockFi Interest Accounts (BIAs).

BlockFi launched its service earlier in March 2019, offering loans to those who are interested in borrowing crypto, starting from $2,000, and go as high as $100 million, against bitcoin, ethereum, and stablecoins.

The Winklevoss twins’ Gemini exchange is providing the custody to BlockFi accounts, which also offer digital asset insurance coverage. However, the SEC said the product constitutes an offering of unlicensed securities and is akin to the usual savings account provided by banks.

“The order finds 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 finds that BlockFi operated for more than 18 months as an unregistered investment company because it issued securities and also held more than 40 percent of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers,” the SEC said.

Crypto lenders are navigating regulatory hurdles

The SEC is reportedly investigating Celsius Network, Voyager Digital, and Gemini Trust, as a part of a broader scrutiny against cryptocurrency lending platforms. Until now, the regulator did not accuse the three crypto firms of any wrongdoings or brought charges yet. Rather, the SEC is checking if their DeFi and lending products should be registered as securities.

Earlier in September, the US regulators signaled a big change in policing cryptocurrencies and the growing Defi sector after they blocked Coinbase from launching a new crypto lending product. The SEC officials have increasingly been talking about a need to crack down on these products, which are essentially unregistered interest-bearing accounts, the agency claims.

SEC’s probe into DeFi products comes amid heightened regulatory interest into cryptocurrencies and the digital asset market. Chair Gary Gensler called on Congress to give the agency more authority to better police crypto trading and lending platforms, which pay customers rates higher than most bank savings accounts.

The New York Attorney General’s Office also ordered two cryptocurrency lending platforms, which were reportedly Nexo and Celsius, to stop operating in the state. She also sent three other platforms letters with questions about their operations.

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