(Bloomberg) — BlockFi Inc., a popular crypto platform, agreed to pay $100 million to the Securities and Exchange Commission and state regulators over allegations it illegally offered a product that pays customers high interest rates to lend out their digital tokens.
The company sold the accounts to U.S. investors without registering them with the SEC as securities, the agency said in a Monday statement. As part of the agreement, current BlockFi customers can continue to earn interest on their existing investments, but the company must not sell the products to new American clients. The company has 60 days to seek to comply with SEC regulations and it’s also seeking to register a new crypto-lending product that will satisfy the agency’s rules.
“Today’s settlement makes clear that crypto markets must comply with time-tested securities laws,” SEC Chair Gary Gensler, who has frequently warned trading platforms for digital assets that they likely need to be registered with the federal watchdog, said in a statement. “It further demonstrates the commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
BlockFi, which didn’t admit or deny the regulator’s findings, will pay $50 million to the SEC and another $50 million to 32 states. The penalty is the largest ever by the SEC against a crypto company.
As part of the allegations, the SEC said the Jersey City, New Jersey-based firm had a misleading statement on multiple website posts by stating institutional loans were “typically” over-collateralized, when most were not.
Hester Peirce, a Republican commissioner, said in a statement that she voted against the settlement because $100 million in combined penalties was “disproportionate” to the allegations. “Rather than forcing transparency around retail crypto lending products, today’s settlement may stop them from being offered to retail customers in the United States,” she added.
Meanwhile, Zac Prince, chief executive officer of BlockFi, said the company would work with the regulator to comply with its rules. “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,” he said in a statement.
BlockFi would be the first platform to register a crypto interest-bearing security, a move that could add pressure on other firms with similar products to follow suit. Companies offering digital-asset lending have attracted tens of billions of dollars in deposits by promising yields that far exceed those available through traditional savings accounts.
As of March 2021, BlockFi and its affiliates held about $14.7 billion in BlockFi Interest Accounts, according to the SEC. That same month the firm raised $350 million from investors including Bain Capital Ventures and Tiger Global in a round that valued the company at $3 billion.
(Updates with comment from SEC commissioner opposing settlement in sixth paragraph)
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