BlockFi Agrees to Pay $100 Million to Settle SEC, Individual State Suits
For years, regulators have grappled with how to handle new technologies. This has been especially true when it comes to cryptocurrencies. Now, the crypto firm BlockFi has made headlines after reaching a settlement with the Securities and Exchange Commission, as well as with several state regulators.
The SEC has charged BlockFi with failing to register its crypto lending product, as well as with violating registration provisions as outlined in the Investment Company Act of 1940. BlockFi has agreed to pay $50 million in fines to the SEC and another $50 million in fines to 32 states. Additionally, the FinTech will “bring its business within the provisions of the Investment Company Act within 60 days” and register its lending products in accordance with the Securities Act of 1933.
As a result of the settlement, United States customers will no longer be able to open a BlockFi Interest Account. Furthermore, while existing U.S. customers will continue to earn interest on their holdings and can move/withdraw funds from their accounts, they will not be able to add assets to their accounts at this time. Once the planned BlockFi Yield product is properly registered with the SEC, BlockFi Interest Account users will be moved to the new product.
In a post on BlockFi’s site, the company’s CEO and founder Zac Prince commented on today’s agreement, saying, “From the day we started BlockFi, we have always known that strong engagement with regulators would be critical for the adoption of financial services powered by cryptocurrencies. Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product – the crypto-backed loan.” Prince continued, “We intend for BlockFi Yield to be a new, SEC-registered crypto interest-bearing security, which will allow clients to earn interest on their crypto assets.”
Meanwhile, SEC Chair Gary Gensler also noted the historic nature of the resolutions, saying in a statement, “This is the first case of its kind with respect to crypto lending platforms. Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
Although paying out $100 million in fines is never advantageous, in the long run, this agreement could prove to be good news for BlockFi. While it’s unclear exactly what the upcoming BlockFi Yield account will offer, the fact that it will be properly registered with the SEC will give it more legitimacy. What’s more, by helping define what is and is not permissible, BlockFi’s settlement can help guide the way for future FinTechs in the crypto space. Thus, today’s announcement is likely one that will be looked back upon often in the coming years.