Following a hefty penalty, BlockFi to offer the first SEC-registered crypto interest-bearing security 🚨 This article is 3 years old...
Following a hefty penalty, BlockFi to offer the first SEC-registered crypto interest-bearing security
The $100 million fine counts as the largest ever penalty against a crypto firm, but BlocFi assures it finally has the regulatory clarity needed for an upcoming registration process.
2 min read
Updated: Feb. 15, 2022 at 8:26 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
The US Securities and Exchange Commission (SEC) recently announced reaching a $50 million settlement with crypto lending platform BlockFi.
To settle all charges over a failure to register its crypto lending product offers and sales, BlockFi agreed to pay an additional $50 million penalty to 32 states.
BlocFi Interest Accounts are securities
“This is the first case of its kind concerning crypto lending platforms,” SEC Chair Gary Gensler said in the announcement, arguing the 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.”
According to the SEC’s order, the crypto lending platform offered and sold BlocFi Interest Accounts (BIAs) to the public without complying with those laws.
BlocFi’s popular savings product allows clients to accrue interest on their crypto–with annual percentage yields as high as 9.25%.
“The order finds that BIAs are securities under applicable law, and the company, therefore, was required to register its offers and sales of BIAs but failed to do so or to qualify for an exemption from SEC registration,” read the announcement.
Combined $100 million fine counts as the largest ever penalty against a crypto firm.
“Additionally, the order finds that BlockFi operated for more than 18 months as an unregistered investment company because it issued securities and also held more than 40 percent of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers,” the announcement concluded.
Landmark product
Meanwhile, BlockFi clarified that the settlement only relates to its BIA product for US clients–meaning that other products including Wallet, Personalized Yield, Loans, Credit Card and Trading, as well as institutional products including BlockFi Prime, remain unaffected.
According to BlocFi, current US clients will continue to earn interest in their existing accounts but won’t be able to add more assets, nor open a new BIA, while non-US users remain unaffected altogether.
However, the crypto lending platform plans to “file or confidentially submit a registration statement on Form S-1 with the SEC for the offering of BlockFi Yield (BY)”–to enter the books as the first SEC registered crypto interest-bearing security.
Once the registration process is complete, BIA accounts will be converted to BY, unless a client instructs BlockFi otherwise, and new deposits and client sign-ups in the US will be enabled.
“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,” said Zac Prince, CEO, and Founder of BlockFi.
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BlockFi
BlockFi is a defunct cryptocurrency lender company which is currently in bankruptcy proceedings.