BlockFi to Pay $100M for Securities Registration and Anti-fraud Violations

A press release issued Monday by the Securities and Exchange Commission (SEC) said that crypto lending platform BlockFi Lending LLC settled registration and other charges with both the SEC and 32 states for $50 million apiece. Notably, the SEC accused BlockFi of violating the registration provisions of the Investment Company Act of 1940, a first-of-its-kind claim.

According to the securities tribunal’s order, for the past three years the defendant offered and sold BlockFi Interest Accounts (BIAs) to the public. The SEC said that because investors lent crypto assets to BlockFi in exchange for its promise to provide variable monthly interest payments, BIAs qualified as securities. However, they were never registered as such in violation of the Securities Act of 1933.

Additionally, BlockFi reportedly held more than 40% of its assets in investment securities, including loans of crypto assets to institutional borrowers, transgressing the Investment Company Act of 1940, the order said. Finally, the SEC alleged that BlockFi made a false and misleading statement, present on its website for more than two years, concerning the level of risk in its loan portfolio and lending activity.

Without admitting or denying fault, BlockFi has agreed to settle the federal and state charges. In the case of the SEC, BlockFi agreed to cease-and-desist future violations of the relevant provisions and agreed to stop selling BIAs in the United States. BlockFi’s parent company also announced that it intends to register BlockFi Yield, a new crypto interest-bearing security.

For its part, BlockFi said it was glad to resolve the allegations and obtain “increased regulatory clarity,” in a blog post. “With today’s resolution, we are leading the creation of a new regulatory landscape for crypto and our clients,” the company said, noting that though BIA clients will continue to receive interest as they always have, they may not add further assets to their BIAs.