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The Securities and Exchange Commission has reached a $100 million settlement with BlockFi Lending over registration failures, the first time since the regulator warned it last fall. Taking action against crypto money firms offering loan products that do not register themselves as securities or register themselves as investment companies.
“Today’s agreement 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,” SEC chairman Gary Gensler said on Monday.
The commission said that since March 2019, New Jersey-based BlockFi has offered customers the chance to lend the company’s digital assets and earn interest on those loans. Regulators said the program is essentially an investment contract in which customers lend their money with the promise that it will be repaid later. The SEC found that BlockFi must register them as securities and register itself as an investment firm.
While the deal is the first of its kind, the threat of SEC scrutiny has already scuttled plans for Coinbase, the largest US-based cryptocurrency exchange, to launch a similar loan product. Coinbase executives argued that its new product should not count as a security, but Canceled plans for an interest-bearing Lend product in September
Zac Prince, CEO of BlockFi, said the deal is a step forward.
“Today’s milestone is yet another example of our pioneering efforts to achieve regulatory clarity for the broader industry and our customers, just as we did for our first product, crypto-backed loan,” Mr Prince said in a statement.
Mr. Prince said that BlockFi is preparing to introduce a new version of its loan product called BlockFi Yield, which complies with SEC rules.
“We aim for BlockFi Yield to be a new, SEC-registered, crypto interest-bearing security that will enable customers to earn interest on their crypto assets,” he said.
The company said that existing customers of its current loan product, BlockFi Interest Accounts, will be able to maintain their outstanding loans and earn interest as usual, but not add to their positions. The company also said it will stop offering this product to new US customers. BlockFi has 60 days to meet the SEC’s registration requirements.
Half of the $100 million deal will go to the SEC, with the other half going to 32 states where regulators have brought similar charges against BlockFi, the commission said.
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