BlockFi Could Face $100M Settlement For Unregistered Securities Offering

In a similar way to Block.one, the SEC intends to fine BlockFi for offering unregistered securities.

BlockFi, a crypto lending platform, is required to pay an expected $100M fine for allegedly offering a product that pays out interest to customers for lending out their tokens. The Securities and Exchange Commission alleges that the interest-bearing products are unregistered securities. The final amount that will need to be paid by BlockFi is set to be revealed sometime next week. The fine would be the SEC’s most severe penalty on a crypto company.

BlockFi is also set to discontinue its new high-yield product for the majority of U.S. residents. BlockFi’s core business is offering clients high returns for locking up bitcoin, Ethereum, and Tether in savings accounts. Yields of 5 to 10% are offered. BlockFi lends the locked-up assets at a higher rate.

Not BlockFi’s first run-in with a regulator

As previously reported by BeInCrypto, state regulators from BlockFi’s home state of New Jersey, Vermont, Alabama, and Texas all tackled BlockFi in 2021 in one way or another. Some issued cases-and-desist orders; others show-cause orders. The main issue was the offering of unregistered securities, which caught the attention of the SEC. If a consumer locks up their money in an investment product, or in SEC parlance, “in a common enterprise,” the SEC believes that it becomes an investment contract. An investment contract falls within the ambit of the SEC’s regulatory powers.

Regulators are concerned about investor safety and the lack of federal insurance for these accounts. BlockFi issued a statement in response to the potential $100M fine. They said that they do not participate in “market rumors.” They have reassured customers that their holdings are secure on BlockFi and that BlockFi Interest Accounts will continue to earn interest.

BlockFi introduced withdrawal fees for all assets from Dec. 1, 2021, much to the dismay of clients. The fees apply to Chainlink, Ethereum, PAXG, Uniswap, Basic Attention token, BTC and LTC. The company claimed that the fees were introduced to combat the increasing transaction fees on Ethereum and that it does not stand to profit from the withdrawal fees. The community was angered since other platforms like Nexo offer three free withdrawals per month, in addition to a flat withdrawal fee for every subsequent transaction.

SEC fined Block.one for similar infraction

In 2019, the SEC fined Block.one $24M for conducting an unregistered initial coin offering of cryptocurrencies that raised a few billion over one year. Of the civil penalty, Stephanies Avakian, Co-Director of the SEC’S Enforcement Division, said, “Companies that offer or sell securities to U.S. investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.

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