BlockFi to Pay $100 Million on Crypto Lending Platform | Faegre Drinker Biddle & Reath LLP

On February 14, 2022, the SEC announced charges against BlockFi Lending LLC – a New Jersey-based cryptocurrency lending platform – for failing to register its crypto lending product and violating corporate law. Investment Bill of 1940. BlockFi agreed to a settlement in which it would pay a $50 million fine, cease unregistered offerings and sales of its loan product, and attempt to bring its business into compliance with corporate law. investment within sixty (60) days. Additionally, BlockFi agreed to pay $50 million in fines to 32 states to settle similar charges.

BlockFi offered and sold BlockFi Interest Accounts (“BIA”) to investors, through which investors loaned crypto assets to BlockFi and, in exchange, BlockFi promised variable monthly interest payments paid in cryptocurrency . The SEC order sets out the Commission’s findings. First, she concluded that the BIAs were securities because they were notes under Reeves v. Ernst & Young494 US 56 (1990), and because they were sold as investment contracts under SEC vs. WJ Howey Co., 328 U.S. 293 (1946). Second, the SEC found that BlockFi engaged in an illegally unregistered securities offering. Third, it found that BlockFi violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by making materially false and misleading statements regarding its collateral practices and associated risks. to its lending activity. Finally, the SEC determined that BlockFi operated as an unregistered investment firm.

SEC Chairman Gary Gensler noted that “[t]this is the first case of its kind when it comes to crypto lending platforms. Gensler emphasized that “crypto markets must comply with proven securities laws” and said the SEC was willing to “work with crypto platforms to determine how they can comply with those laws.” Gurbir S. Grewal, Director of the SEC’s Enforcement Division, warned that “[c]Rypto lending platforms offering securities like BlockFi’s BIAs should immediately take notice of today’s resolution and comply with federal securities laws.

The SEC’s Office of Investor Education and Advocacy and the Division of Enforcement’s Retail Strategy Task Force issued an Investor Bulletin on February 14, 2022, “to educate investors about the risks associated with accounts that pay interest on deposits of crypto assets”.

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