BlockFi to Pay $100M in Settlement for Probe Into its Crypto Lending Product

Crypto lending platform BlockFi, has agreed to pay a whopping $100 million to settle allegations from the U.S. Securities and Exchange Commission (SEC) and several state securities regulators.

According to a Bloomberg report, which cited several confidential sources, BlockFi will also discontinue new interest-yielding accounts for most Americans as part of the agreement.

A BlockFi spokesperson, Madelyn McHugh said, “We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors… We can confirm that clients’ assets are safeguarded on the BlockFi platform and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”

BlockFi’s Crypto Lending Products Under Intense Regulatory Scrutiny

BlockFi offers its over 1 million clients various crypto-related services, including fee-free trading, interest-yielding accounts, and portfolio-backed loans that allow customers to borrow money against their crypto assets.

However, in November 2021, the SEC alleged that BlockFi’s crypto lending product, which gives customers a yield of up to 9.5% annual returns, is an unregistered security. 

The latest SEC scrutiny of BlockFi’s lending products came after several state securities regulators demanded that the company cease offering its products to residents in their various jurisdictions.

Earlier in July 2021, the lending platform had received a Cease and Desist Order from the New Jersey Bureau of Securities to stop offering interest-bearing accounts in the state.

According to confidential sources, this $100 million penalty levied on BlockFi would be one of the largest-ever enforced on a cryptocurrency firm amid the ongoing crackdown on the rapidly growing industry.

Regulators Intensify Crackdown on Crypto Lending Services

Financial regulators from across the globe have been intensifying their scrutiny on various crypto firms that offer lending services with high returns that far exceed those offered by traditional financial firms.

SEC chair Gary Gensler has argued that several crypto firms are promoting and selling products that should be registered with the SEC for fear of increased regulatory oversight.

Recently, Celsius Network, Gemini Trust Co., and Voyager Digitals Ltd. have fallen under the SEC’s radar due to their rising popularity among retail investors for paying high yields of up to 10%.