BlockFi to pay record fine to settle U.S. SEC

A subsidiary of crypto company BlockFi Inc has agreed to pay $100 million to the U.S. Securities and Exchange Commission (SEC) and 32 states to settle charges in connection with a retail crypto lending product.

The settlement is also an example of SEC chair Gary Gensler’s strategy to force crypto companies to fall in line with existing U.S. securities laws.

The agency said it hopes more companies will follow suit.

The penalty includes $50 million for state regulators and $50 million to the SEC, the largest fine the federal watchdog has levied on an issuer of crypto asset securities.

BlockFi Lending LLC broke the rules by offering an interest-bearing lending product without registering it with regulators.

The company and its affiliates held about $10.4 billion in assets from investors – nearly 400,000 in the United States – as of Dec. 8, the SEC said.

The North American Securities Administrators Association (NASAA), which coordinated the multi-state probe, alleged BlockFi failed to comply with similar state registration rules. It added that more jurisdictions are expected to join the settlement.

As part of the settlement, BlockFi plans to offer an alternative product expected to be the first crypto interest-bearing security registered with the SEC, the company said.

The charges are lower than they might have been due to BlockFi’s willingness to cooperate, the SEC said.

From March 2019 to present, BlockFi offered and sold BlockFi Interest Accounts, or BIAs, that allowed investors to lend crypto assets to BlockFi in exchange for a promise to provide a variable monthly interest payment, the SEC said.

The company failed to register the product with the SEC, in violation of the law. BlockFi also broke rules by failing to register as an investment firm, the SEC said.

BlockFi also understated the risks associated with its lending activities, saying they were “typically” over-collaterized when most were not, the SEC said.

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