BlockFi Agrees to $100 Million Settlement With SEC, States Over Lending Product

BlockFi says the settlement provides regulatory clarity to other crypto lenders

Crypto lending and interest startup BlockFi Lending LLC agreed on Monday to pay $100 million to the Securities and Exchange Commission (SEC) and 32 states to settle charges over failing to register its retail cryptocurrency lending product, BlockFi Interest Accounts.

Key Takeaways

  • BlockFi has agreed to pay a $100 million settlement for failing to register its crypto lending product.
  • The crypto lender claims it can offer high yields as larger investors are prepared to pay more to borrow crypto assets.
  • BlockFi says the settlement provides regulatory clarity for other crypto lenders. 
  • The SEC is also reportedly investigating the lending practices of Celsius, Gemini, and Voyager Digital Ltd.

The company, backed by billionaire Peter Thiel, will pay the SEC $50 million and cease offering its high-yielding lending product to most U.S. customers as part of the settlement. It will also pay $50 million to various state regulators. “This is the first case of its kind with respect to crypto lending platforms,” SEC Chair Gary Gensler said in a statement announcing the settlement.

“Today’s settlement makes clear that crypto markets must comply with time-tested securities laws," Gensler said in the statement. "It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws."

BlockFi, which offers yields on popular digital assets like Bitcoin, Ethereum, and Tether (USDT) as high as 9.25%, has faced scrutiny from regulators throughout most of 2021. The crypto lender claims it can offer higher interest rates than traditional financial institutions as larger investors are prepared to pay more to borrow crypto deposits.

Tether is a blockchain-based cryptocurrency whose tokens in circulation are supposedly backed by an equivalent amount of U.S. dollars, making it a stablecoin with a price pegged to USD $1.00.

Settlement Provides Regulatory Clarity

BlockFi’s CEO and founder Zac Prince said in a statement that the settlement provides regulatory clarity for other crypto lenders. “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.”

BlockFi also confirmed it's applying to register a new crypto savings product with the SEC called BlockFi Yield, which will allow customers to accrue interest on their digital currency holdings.

All cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies.


SEC Crackdown Continues

The agency has continued its crackdown on crypto lenders in recent months and used the BlockFi settlement as a warning shot to other industry participants. “They should take immediate notice of today’s resolution and come into compliance with the federal securities laws,” SEC enforcement division director Gurbir S. Grewal said in the statement. The watchdog is also reportedly scrutinizing the lending practices of Celsius Network, Gemini Trust Co., and Voyager Digital Ltd., Bloomberg News reported last month, and all have confirmed they're talking with regulators.

In September, Coinbase Global, Inc. (COIN)—the largest U.S.-based exchange—scrapped plans to launch a crypto interest-generating service after the SEC threatened to sue the San Francisco-based company, arguing that the offering could violate securities laws.

Crypto investors and industry participants are also watching developments in the SEC’s lawsuit against blockchain payments company Ripple Labs Inc. for further regulatory clarity. In late 2020, the agency sued the company for selling unlicensed securities. Ripple argues XRP—the native currency of the Ripple network—is a virtual currency, not an investment contract.

The case’s outcome will help set precedence as to whether crypto assets are classified as securities and therefore subject to securities law until policymakers develop a more comprehensive regulatory framework governing the emerging asset class.   

Article Sources

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  1. U.S. Securities and Exchange Commission. "BlockFi Agrees to Pay $100 Million in Penalties and Pursue Registration of its Crypto Lending Product." Accessed Feb. 15, 2022.

  2. CNBC. "Peter Thiel-Backed Crypto Start-Up BlockFi to Pay $100 Million in Settlement with SEC, 32 States." Accessed Feb. 15, 2022.

  3. BlockFi. "BlockFi Enters Landmark Resolution with Federal and State Regulators Providing Clarity on Pathway for Crypto Interest Securities." Accessed Feb. 15, 2022.

  4. Bloomberg. "Crypto Lending Firms Celsius Network, Gemini Face SEC Scrutiny." Accessed Feb. 15, 2022.

  5. Coinbase Blog: "we are not launching the USDC APY program announced below." Accessed Feb. 15, 2022.

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