On Feb. 14, the Securities and Exchange Commission, or SEC, announced actions against crypto lending company BlockFi over its failure to register high-yield interest accounts that the agency deems to be securities.
New Jersey-based BlockFi will pay $50 million in settlement to the SEC and another $50 million to 32 U.S. states that brought similar charges. These are some of the heaviest penalties ever imposed by a U.S. federal regulator on a cryptocurrency service provider. The firm also agreed to stop onboarding new customers to the unregistered service, BlockFi Interest Accounts, and attempt to bring it into compliance with the Investment Company Act of 1940 within the next 60 days.
BlockFi Interest Accounts, launched in March 2019, allowed investors to lend their crypto assets to the platform in exchange for monthly interest payments of up to 9.5% — significantly higher rates than interest-bearing deposit accounts in most traditional financial institutions offer.
Despite the widespread critique that securities laws written in the 1930s and 1940s could have limited applicability to digital asset-based products, SEC chairman Gary Gensler lauded the settlement as an instructive precedent for crypto lending platforms. Gensler said in a statement:
“Today’s 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. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws.”
Cryptocurrency lending products began attracting increased scrutiny from both federal and state regulators last September. According to a January report, the SEC was investigating products similar to BlockFi Interest Accounts offered by Gemini, Celsius Network and Voyager Digital to determine whether these offerings constituted securities.