https://ift.tt/IcwCn6t SEC Charges BlockFi with $100M in Penalties Over Its BIAs

The US SEC charges BlockFi, a crypto trading, and lending platform, with $100 million in penalties for failing to register its controversial crypto lending product, BlockFi Interest Accounts (BIAs).

In a press release on Monday, February 14, the US Securities and Exchange Commission (SEC) announced that it had charged BlockFi “with failing to register the offers and sales of its retail crypto lending product.” The charges include the violation of the registration provisions of the Investment Company Act of 1940.

To settle the SEC charges, BlockFi will pay $50 million in penalties and an additional $50 million in fines to 32 states to settle similar charges.

Controversial BlockFi Interest Accounts (BIAs)

BlockFi is a New Jersey-based crypto trading and lending platform. According to SEC Order, the company launched its crypto lending product, BlockFi Interest Accounts (BIAs), in March 2019. In BIAs, investors lend crypto assets to BlockFi in exchange for BlockFi’s promise to provide a variable monthly interest payment.

The SEC Order reads:

“BlockFi generated the interest paid out to BIA investors by deploying its assets in various ways, including loans of crypto assets made to institutional and corporate borrowers, lending U.S. dollars to retail investors, and by investing in equities and futures. As of March 31, 2021, BlockFi and its affiliates held approximately $14.7 billion in BIA investor assets. As of December 8, 2021, BlockFi and its affiliates held approximately $10.4 billion in BIA investor assets, and had approximately 572,160 BIA investors, including 391,105 investors in the United States.”

However, the regulator considered BlockFi’s BIAs “securities under applicable law” that were required to be registered with the SEC. But the company failed to do so and, therefore,

“it operated for more than 18 months as an unregistered investment company because it issued securities and also held more than 40 percent of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers.”

BlockFi’s BIAs product was in muddy waters even before the SEC actions. As Crypto Economy reported, in July 2021, the New Jersey Bureau of Securities issued a cease and desist order against BlockFi to stop accepting new BlockFi Interest Accounts (BIA).

The regulator also alleged that the firm also misled the users for more than two years regarding the risks in its loan portfolio and lending activity.

BlockFi Agrees to Settle Charges

According to the announcement, without admitting or denying the SEC allegations, BlockFi has agreed to settle the charges and a cease-and-desist order to stop offering and selling BIAs in the US.

BlockFi CEO Zac Prince noted that the SEC settlement did not affect other BlockFi products. Existing BIAs clients would continue to earn interest. Only US users won’t be able to add new funds to their accounts or open a new account. BIAs will continue to function for users outside of the US.

Zac further announced that soon the company would start the registration process with the SEC to launch BlockFi Yield, a new crypto interest-bearing security, that would be merged with BIAs.