The cryptocurrency firm BlockFi has agreed to pay $100 million to the U.S. Securities and Exchange Commission and 32 states to settle charges related to its crypto lending product “BlockFi Interest Accounts.”
BlockFi advertises itself as a bank-like platform for crypto users. Backed by billionaire investor Peter Thiel, its popular savings product lets clients earn interest on their digital currency holdings.
On its website, BlockFi promotes annual percentage yields as high as 9.25%, which is much higher than the average savings rates offered by traditional financial institutions. The firm says it’s able to offer such high rates because large institutional investors are willing to pay more to borrow the deposits.
However, Bitcoin and other digital assets are not regulated, and authorities are becoming increasingly concerned by the lack of oversight for crypto-related services that closely resemble traditional, regulated financial products.
The SEC has charged BlockFi with failing to register BlockFi Interest Accounts, and also with violating the registration provisions of the Investment Company Act of 1940. BlockFi has agreed to pay the SEC $50 million to settle the charges, without admitting any wrongdoing or liability. It will also pay $50 million to 32 states over similar charges.
“This is the first case of its kind with respect to crypto lending platforms,” said SEC Chair Gary Gensler. “[This] settlement makes clear that crypto markets must comply with time-tested securities laws.”
BlockFi’s U.S. customers will no longer be able to open new interest accounts with the firm. And while clients can continue receiving interest on their existing holdings, they cannot add new assets to their accounts.
Now, BlockFi is applying to register with the SEC to offer a new crypto savings product called BlockFi Yield. The company plans to ultimately move existing U.S. users over to the new service, unless those users decide against it.
The SEC is reportedly also scrutinizing crypto lenders that offer services like BlockFi’s, such as Celsius, Gemini, and Voyager Digital. Gurbir S. Grewal, director of the SEC’s enforcement division, issued a warning to crypto lenders, saying they “should take immediate notice of today’s resolution and come into compliance with the federal securities laws.”
In 2021, the SEC threatened to sue Coinbase, causing it to shelve its own plans to launch an interest-earning crypto product. CEO of Coinbase Brian Armstrong got into a public squabble with the SEC, accusing it on Twitter of “sketchy behavior.”
Founded in 2017, BlockFi has raised a total of over $500 million in venture funding to date and was last privately valued at $3 billion.