Crypto platform BlockFi to pay $100mn penalty over interest accounts

US regulators have taken their first enforcement action on cryptocurrency lending, agreeing $100mn in settlements with BlockFi over charges that it offered interest-bearing accounts without registering them as securities.

The US Securities and Exchange Commission announced on Monday it had agreed a $50mn settlement with the company, which will pay the same amount again to a group of 32 states.

The federal regulator said the case clarified a legal grey area over popular interest-bearing accounts linked to cryptocurrency lending products, and warned that there could be more such cases to come if other lenders fail to register with the commission. BlockFi, based in New Jersey, said it would soon offer the first SEC-registered crypto interest-bearing security.

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

Lending in cryptocurrency has boomed with the recent run-up in digital assets, with start-ups such as Celsius also offering high yields to users willing to deposit their tokens. Many programmes in decentralised finance also offer interest-bearing products without going through intermediaries such as banks.

BlockFi began selling its BlockFi Interest Accounts in March 2019, offering a variable interest rate on investors’ crypto assets.

As of December 8 last year, 572,160 people had invested a total of $10.4bn in BIAs, according to the SEC’s filing. BlockFi was valued at $3bn last March by investors including Bain Capital Ventures and Tiger Global Management.

The SEC alleged that BlockFi broke the law by offering these accounts with a promise of regular interest payments, but without registering with the commission first.

Gurbir Grewal, director of the SEC’s enforcement division, said: “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.”

BlockFi had previously insisted the account was “not a security” and that it was “lawful and appropriate for crypto market participants”.

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The case marks a new front in Gensler’s attempts to bring the fast-growing cryptocurrency world under the remit of US regulators. He told the Financial Times last year that crypto trading platforms would need to be regulated to survive, urging such companies to register with the commission.

The SEC also alleged that BlockFi made its product sound less risky than it was by claiming that its institutional loans were “typically” backed by more than enough collateral to cover any potential losses. In fact, the commission said, this was not true for most of its institutional loans.

SEC officials said the penalty would have been much higher if the company had not quickly co-operated with officials.

BlockFi, which has not admitted wrongdoing, will continue to operate the BIA accounts but it will not accept any new investment into them. It is instead launching a new crypto account called the BlockFi Yield, which will be registered with the SEC.

Zac Prince, BlockFi’s chief executive, said: “Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product — the crypto-backed loan.

“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.”

Video: Cryptocurrencies: how regulators lost control
hello, I am Flora Khan and i work journalist in allnewshouse website i work in other sites like forbes and washington post with 5 years in experience.

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