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SEC Hits Crypto Firm BlockFi with $100 Million in Penalties

Posted  February 22, 2022

The SEC recently announced cryptocurrency financial institution BlockFi agreed to pay $100 million to resolve charges it violated securities laws. Half the penalties will go to the SEC, and the other half will go to 32 states that brought similar charges. The settlement represents the largest recorded penalties the Commission has ever imposed on a crypto firm. It also sends a clear message the SEC will not shy away from regulating cryptocurrency markets.

Valuations in the multi-billions earned BlockFi a spot among “The Future of Crypto and Blockchain” on Forbes’ FinTech 50 2021 list. On its website, the lending platform touts itself as “trusted by over 1M+ verified clients and 350 global institutions to manage over $10b in assets.”

The charges center around crypto accounts the SEC said BlockFi should have but failed to register as securities. The accounts were designed such that investors lent crypto assets to the company in exchange for BlockFi’s promise to repay with variable monthly interest. According to the Commission, this structure meets the definition of a security, and BlockFi needed to register its offers and sales. BlockFi was also charged with failing to register as an investment company. Additionally, the company misled investors about the level of risk involved and its ability to repay investors in the event of a run on its assets, the SEC said.

The settlement is among the latest signals cryptocurrency companies are not immune from regulation and enforcement. As Constantine Cannon attorney Poppy Alexander told BuzzFeed just days before the SEC announced the charges, “This idea that because something is happening via crypto it doesn’t fall under the same laws and rules that exist for every other transaction is wishful thinking by libertarian utopians.”

SEC Chair Gary Gensler echoed that sentiment in the agency’s press release, saying the BlockFi 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.” And the SEC’s Division of Enforcement head Gurbir S. Grewal said, “Adherence to our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space.”

Though it did not admit or deny liability, BlockFi agreed to cease offering or selling these accounts in the United States.

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Tagged in: Cryptocurrency, Financial and Investment Fraud, Securities Fraud,