BlockFi agreed to pay a $100M penalty to the SEC and states for violating the Investment Company Act of 1940 and the firm is preparing to launch a new version of its loan product, BlockFi Yield, that would comply with SEC regulations.
In Brief:
- BlockFi has 60 days left to adhere to the Investment Company Act 1940.
- BlockFi plans to launch a new version of the product dubbed BlockFi Yield adhering to the SEC rules.
- The firm intends to migrate existing US users to the new service in the future unless they opt out.
Zac Prince, BlockFi’s chief executive, said “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.”
The SEC charged BlockFi with failing to register the offers and sales of its retail crypto lending product. The SEC filing claimed that BlockFi violated the law by offering these accounts with the promise of regular interest payments without first registering as a security or as an investment company with the commission.
In March 2019, BlockFi began offering its BlockFi Interest Accounts(BIA), which provide a variable interest rate on investors’ crypto assets.
BlockFi has neither denied nor admitted the charges but BlockFi agreed to pay the SEC $50 million as settlement. It will also pay an additional $50 million to 32 states for similar charges.
“This is the first case of its kind with respect to crypto lending platforms. 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,” SEC Chair Gary Gensler noted.
BlockFi also agreed to make an effort within 60 days to bring its operations into compliance with the Investment Company Act of 1940.
Regarding the settlement, BlockFi stated that customers in the United States will no longer be able to open new interest accounts with the firm. The firm intends to migrate existing US users to the new service in the future unless they opt out.
Users can continue to receive interest on their existing assets but they cannot add new assets to their accounts.
ThJust last month the SEC fined blockchain-based trading platform tZERO for violating financial disclosure requirements. tZERO was fined $800k and the SEC issued a cease-and-desist order. Just like BlockFi, tXERO neither denied or accepted the accusations and recommended settlement.
