Crypto firm BlockFi settles with SEC, states for $100M over lending business

A cryptocurrency firm will pay $100 million to settle claims it failed to register its crypto lending account product with federal and state regulators, the Securities and Exchange Commission (SEC) announced Monday.

In a Monday settlement, BlockFi Lending LLC agreed to pay $100 million split between the SEC and 32 states and end its BlockFi Interest Accounts (BIAs), which allowed cryptocurrency holders to deposit their digital tokens with the company in exchange for interest.

BlockFi would lend and invest the cryptocurrency to generate interest for the accounts and held roughly $10.4 billion in assets for roughly 570,000 BIA account holders, according to the settlement.

The SEC charged BlockFi with violating 82-year-old federal rules that require companies that offer securities — including investment contracts — to register those products with the agency. 

“This is the first case of its kind with respect to crypto lending platforms,” SEC Chairman Gary Gensler said. “Today’s settlement makes clear that crypto markets must comply with time-tested securities laws.

BlockFi agreed to offer a new version of the BIA registered with the SEC under the Securities Act of 1933, one of the first federal laws governing the sale of stocks and other investment products. The company did not admit to any wrongdoing, per the terms of the settlement.

The settlement with BlockFi is one of the SEC’s most notable actions taken against a company that allegedly violated long-standing investor protection laws with cryptocurrency-related offerings. While cryptocurrencies themselves often straddle lines between different financial assets, selling digital tokens or product tied to them with the promise of financial gains can be legally similar to selling shares of a company or a retirement account.

“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws,” said Gurbir Grewal, director of the SEC enforcement division. 

“Adherence to our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space,” Grewal added.

Despite the significant fine, BlockFi CEO and founder Zac Prince called the settlement a “milestone” in a Monday statement, saying the agreement was “another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients.”