BlockFi to pay $100 million in settlement with Securities and Exchange Commission, and state regulators to settle the allegations that a product was illegally offered by the crypto lender to the customers. In order to get the customers to lend out their digital tokens, this particular product paid high-interest rates, sources close to the matter said. The penalties are yet to be announced, and by far they hold the record of being the toughest ones levied on a crypto firm. The regulators have been keeping the industry under the radar of scrutiny for quite some time. The SEC and state investigators have been on the lookout to confirm whether the accounts offered by the company are similar to securities registered with the regulators.
The What and Why
The growing popularity of the crypto industry is also synonymous with the growing vulnerability of those investing in crypto. Over the past few years, crypto lenders have been under the radar of scrutiny. And now, as far as BlockFi is concerned, the agreement with the regulators would mean that it will be barred from opening new interest-yielding accounts for a good majority of Americans. According to Madelyn McHugh, a BlockFi spokesperson,
“We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors. We can confirm that clients’ assets are safeguarded on the BlockFi platform and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”
Gray Gensler, the SEC chair has been cautioning against rapidly-growing crypto firms, expressing suspicion over their financial services which might not be in line with the regulatory benchmark, or that they might not be adhering to the investor-protection rules which are mandatory for banks, brokers, and other entities which have been in the field for quite a long time.
New Jersey-based BlockFi will pay a fine amounting to $50 million to the SEC, and another $50 million to various states for settling the allegations. BlockFi has become immensely popular with retail investors as they pay yields that at times go beyond 10 percent.
Enforcement actions were carried out by certain Securities regulators from various states last year against BlockFi alleging that the crypto lender was involved in the sale of unregistered securities with multiple risks that are often not disclosed. Companies like Celsius, Gemini, and Voyager Digital Ltd are also facing similar allegations. This was reported by Bloomberg in January. BlockFi justified the high yields by arguing that they were paid even more by the institutional investors for borrowing the deposits.