If your company was in the crypto and blockchain business, would you like to be regulated? This is what happened to BlockFi and Zac Prince, the company’s CEO. For some background – BlockFi was set up in 2017 and is based in New Jersey. The company has 850 employees and over 1 million clients around the world. The company’s product is the popular BlockFi Interest account which has 500,000 users. Of these users, over 400,000 are in the US.
The US SEC filed a suit asking the company to stop its work on July20,2021. This order was signed by the attorneys general of 32 states. A statement issued by NJ’s Attorney General regarding the matter alleges that the company was selling securities that were not registered. These securities are interest earning accounts (crypto) and have earned $14.7 billion across the globe.
On Valentine’s Day 2022, the SEC also announced that BlockFi failed to register offers and sales on its retail lending product in the crypto arena. The suit also alleges that the company misled investors by telling them that their institutional loans were over-collateralized. The fact was that less than a quarter of the loans were collateralized. It was supposed to be an operational oversight and that large institutions were not willing to overcollateralize.
A settlement was reached with the SEC in which BlockFi agreed to pay the SEC $50million and the same amount to the 32 states. The company didn’t admit liability or wrongdoing. BlockFi said that it would try to bring its business practices within the purview of Investment Company Act. This will be done in 2 months. There is a lot of work being done behind the scenes by the states attorney general and the SEC to ensure crypto lending regulation is done right. Most people are waiting to see what unfolds from this decision.