The Securities and Exchange Commission charged Jersey City-based BlockFi Lending LLC on Feb. 14 “with failing to register the offers and sales of its retail crypto lending product,” according to the SEC.
Calling it a “first-of-its-kind action,” the SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940.
According to the SEC, BlockFi agreed to pay a $50 million penalty, cease its unregistered offers and sales of the lending product BlockFi Interest Accounts (BIAs) in the U.S., and attempt to bring its business within the provisions of the Investment Company Act within 60 days.
BlockFi’s parent company also announced it intends to register under the Securities Act of 1933 the offer and sale of a new lending product.
BlockFi agreed to pay an additional $50 million in fines to 32 states to settle similar charges.
“This is the first case of its kind with respect to crypto lending platforms,” SEC Chair Gary Gensler said in a prepared statement. “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. I’d like to thank and commend our remarkable SEC staff and state regulators for their efforts and collaboration on this settlement.”
Gurbir Grewal, director of the SEC’s Division of Enforcement and New Jersey’s former attorney general, added, “Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws. Adherence to our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space.”
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 stated.
Without admitting or denying the SEC’s findings, BlockFi agreed to a cease-and-desist order prohibiting it from violating the registration and antifraud provisions of the Securities Act and the registration provisions of the Investment Company Act.
In a prepared statement, Zac Prince, CEO and founder of BlockFi, said, “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. 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.”
The BlockFi statement said the company cooperated with the government’s investigation and implemented remediation actions. Both the SEC and state-level agreements contain no admission or denial of wrongdoing or liability.
The SEC’s investigation was conducted by Gwen Licardo, Craig Welter and Kenneth Gottlieb, with assistance from Brent Wilner, under the supervision of Hane Kim, chief of the Retail Strategy Task Force; Lara Shalov Mehraban, associate regional director of the SEC’s New York Regional Office; and Kristina Littman, chief of the Cyber Unit.