WASHINGTON–The Securities and Exchange Commission has reached a $100 million settlement with BlockFi Lending over registration failures. The settlement comes after the SEC warned in late 2021 that it would be taking action against cryptocurrency firms offering loan products that failed to register them as securities or to register themselves as investment companies.
“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,” the S.E.C.’s chair, Gary Gensler, said in a statement.
According to the SEC, since March 2019, New Jersey-based BlockFi has been offering customers a chance to lend the company digital assets and earn interest on those loans, the commission said.
According to the regulator, the program was essentially an investment contract in which customers lent their money with the promise they would be repaid more at a later time. BlockFi should have registered them as securities and should have registered itself as an investment company, the SEC stated.
While the settlement was the first of its kind, the threat of SEC scrutiny already had scuttled plans by Coinbase, the largest U.S.-based cryptocurrency exchange, to launch a similar loan product, the New York Times reported. Coinbase executives argued that its new product should not count as a security, but they cancelled their plans for their interest-generating Lend product in September of 2021, the Times added.
CEO Strikes Positive Tone
Far from decrying the SEC fine, in a statement, BlockFi’s CEO Zac Prince, said, “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.”
BlockFi said it is preparing to offer a new version of its loan product called BlockFi Yield, which would adhere to SEC. rules.
The company said existing customers of its current loan product, BlockFi Interest Accounts, would be able to keep their outstanding loans going and would earn interest as usual, but they would not be able to add to their positions.
Half of the $100 million settlement will go to the SEC, while the other half will go to 32 states where regulators had brought similar charges against BlockFi, according to the regulator.