Crypto lending platform BlockFi announced Monday that it has settled charges and entered into a resolution with both the U.S. Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA).
The SEC charged the crypto platform with offering unregistered crypto lending products, along with violating registration provisions of the Investment Company Act of 1940. BlockFi agreed to pay a $50 million penalty and discontinue the sale of the lending product, BlockFi Interest Accounts (BIAs), which is an unregistered product.
BlockFi, according to the SEC, has been selling its product BIAs to clients since March 4, 2019. Through the account, the platform was able to accept crypto assets from investors, with a promise to pay back the loan with monthly interest. However, BlockFi failed to register the BIAs, which the SEC alleges are security assets.
In line with the crypto platform’s agreement to work with the SEC, BlockFi announced its plan to discontinue the sale of new BIAs to U.S. customers. However, existing customers will continue to earn interest on existing deposits without adding new funds to their accounts.
BlockFi to Offer BlockFi Yield Accounts Instead
BlockFi, in exchange for discontinuing new sales of BIAs, announced its intention to file or confidentially submit a registration statement on Form S-1 with the SEC for the offering of BlockFi Yield (BY) along with the agreement to pay an additional $50 million in fines.
The new BlockFi product, which will be available to its U.S. clients, has the potential to become the first SEC-registered crypto interest-bearing security company. Therefore, while new sales of BIAs accounts are barred in the meantime, the company will be able to convert all existing accounts to new BlockFi Yield accounts once the registration is approved.
The SEC’s probe into BlockFi and today’s settlement sets a new precedent for U.S. crypto firms offering interest-yielding accounts. It effectively confirms that any company desiring to offer such products must secure a registration with the regulatory agency.
Zac Prince, CEO and Founder of BlockFi, commented on the new precedent, saying, “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 in their crypto-assets”