BlockFi settles SEC crypto lending probe with record penalty

BlockFi settles SEC crypto lending probe with record penalty

A cryptocurrency startup will pay $100 million to settle charges that its platform violated investor protection rules by allowing almost 600,000 users to earn interest by lending their holdings to other dealers. According to SEC officials, BlockFi, which had as much as $14.7 billion in assets at its peak last year, would pay the biggest penalties ever paid by a cryptocurrency corporation. According to the SEC, this is the first enforcement action against a crypto lending site. The corporation made no admissions or denials of wrongdoing. BlockFi and its counterparts have grown in popularity in recent years as crypto traders discovered that they could earn significantly larger returns than most banks or bond issuers. The business did not apply for permission to operate as a bank or money manager, and its interest-bearing accounts were not registered with federal bank or securities regulators. BlockFi will stop offering the accounts in the United States and will seek SEC approval for a new product, BlockFi Yield. Gary Gensler, the head of the Securities and Exchange Commission, believes that federal securities authorities should be in charge of much of the crypto-market activity. He has described the current situation as a “Wild West” with a lot of hype, conjecture, and deception. The SEC had previously threatened to punish Coinbase if it implemented a lending product it had advertised. The SEC, according to Coinbase CEO Brian Armstrong, is attempting to frighten his company by failing to justify why it has jurisdiction. Coinbase ultimately chose not to offer the service. Some cryptocurrency companies have chosen to go to court to challenge the SEC’s enforcement allegations. Even if competitors adopt a different stance, BlockFi CEO Zac Prince believes it is best to conclude the probe and focus on growing the company. On February 14, Prince said, “Our DNA in general has not been where we are trying to battle these questions vigorously.” “Our DNA is more of a ‘let’s find the proper way inside whatever existing frameworks we need to facilitate the goods and services that bring value to our clients’ type of thing.” People who deposited bitcoin or other cryptocurrencies with BlockFi had the coins leased to institutional customers who required them to trade. Those entities paid interest to BlockFi, which divided a portion of the money with the interest account holders. BlockFi was also charged by the SEC of deceiving users by downplaying the risk of its lending operations. Institutional customers often provided collateral that was more than their loan amount, according to the company’s website, to safeguard lenders from potential defaults. The statement was false, according to the SEC. BlockFi will split the $100 million penalty with 32 states, some of which accused the company of breaking rules last year and forced it to stop doing business in their state. The first state to issue a cease-and-desist order to BlockFi over the loan accounts was New Jersey. Source