On Thursday, the US Securities and Exchange Commission (SEC) announced that it will settle charges against Linus Financial, a Nashville-based fintech firm, over sales of an unregistered cryptocurrency lending product.
The regulatory authority decided not to impose fines or penalties on Linus Financial because the company quickly cooperated and took immediate steps to fix the issues they were facing.
In March 2020, Linus Financial began to offer and sell its crypto lending product, Linus Interest Accounts, in the United States. These accounts allowed U.S. investors to give their money to Linus Financial in exchange for the promise of earning interest.
Linus Financial then took this money, turned it into cryptocurrencies, combined it with other investors’ money, and managed these pooled funds to make profits, which were used to pay interest to investors and for Linus Financial’s benefit.
The SEC press release stated, “The Linus Interest Accounts were offered and sold as securities, and that the offers and sales did not qualify for an exemption from SEC registration. Therefore, Linus Financial was required to register its offers and sales of the Linus Interest Accounts.”
According to the SEC’s decision, on March 25, 2022, Linus Financial stopped offering its Linus Interest Accounts to new investors and told existing investors to take their money out by the end of April 2022. Everyone who had invested in these accounts has since withdrawn their funds.
Stacy Bogert, Associate Director of the SEC’s division of Enforcement said that the SEC will be strict in holding companies accountable for securities laws violations, “But we also want to encourage companies to cooperate and take prompt corrective action when problems arise. Today’s settlement provides a valuable message to other market participants about the importance of cooperation and remediation.”
Linus Financial accepted to a cease-and-desist order, without admitting or denying the SEC’s findings, banning it from violating the registration provisions of the Securities Act of 1933.