The SEC has charged crypto lending business BlockFi with a $100M penalty for failing to register high-yield interest accounts that the agency considers securities. The penalty also requires the business to stop onboarding new customers to its unregistered service, BlockFi Interest Accounts.
The Securities and Exchange Commission, or SEC, took action against crypto lending business BlockFi on February 14 for failing to register high-yield interest accounts that the agency considers securities.
BlockFi, based in New Jersey, will pay the SEC $50 million and another $50 million to 32 states that filed similar accusations. These are some of the harshest penalties ever issued on a bitcoin service provider by a federal agency in the United States.
The company also agreed to halt new client onboarding for BlockFi Interest Accounts, an unregistered business, and work to bring it into compliance with the Investment Company Act of 1940 within the next 60 days.
BlockFi Interest Accounts
BlockFi Interest Accounts, which were introduced in March 2019, allowed investors to lend their crypto assets to the platform in exchange for monthly interest payments of up to 9.5 percent, which is much more than most traditional financial institutions’ interest-bearing deposit accounts.
Despite considerable criticism that securities rules enacted in the 1930s and 1940s may be restricted in their applicability to digital asset-based businesses, SEC Chairman Gary Gensler praised the settlement as a useful precedent for crypto lending platforms. In a statement, Gensler said:
“Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
Last September, federal and state regulators began to scrutinize cryptocurrency lending schemes more closely. According to a January report, the SEC was looking at products supplied by Gemini, Celsius Network, and Voyager Digital that were comparable to BlockFi Interest Accounts to see if they were securities.