BlockFi agreed to pay a $50 million penalty to the Securities and Exchange Commission (SEC) and an additional $50 million in fines to 32 states to settle similar charges. The fine is related to BlockFi Interest Accounts (BIAs) that lets clients accrue interest on holdings of Bitcoin and other cryptocurrencies. The SEC determined that the BIAs were unregistered securities. In response, BlockFi announced it intends to register under the Securities Act of 1933 the offer and sale of a new lending product.
Specifically, BlockFi promised BIA investors a variable interest rate, in exchange for crypto assets loaned by the investors. Investors in the BIAs had a reasonable expectation of obtaining a future profit. The order further stated that BlockFi made misleading statements on its website regarding the level of risks of its BIA product.
The press release also included a statement by Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, putting other crypto lending platforms on notice and proclaiming that they should take immediate notice of this action and to come into compliance with the federal securities laws.
We expect other digital asset exchanges and digital asset firms to follow BlockFi and register similar crypto interest-bearing accounts with the SEC. We also expect the SEC to continue their regulation by enforcement approach until formal guidance and securities laws specific to digital assets are enacted.
SEC Enforcement Action: BlockFi Lending LLC (sec.gov)