Crypto lending platform BlockFi Inc. will have to pay $100 million as part of its settlement for SEC and other state regulators’ accusations that it illegally offered a product that promises customers high-interest rates to lend out their digital assets, according to sources familiar with the matter.
Bloomberg which first broke the news also revealed that the New Jersey-based firm will pay a $50 million fine to the SEC and another $50 million to various states, said the people asking to remain anonymous because the deliberations are private.
The penalties of this size are among the toughest levied on a cryptocurrency firm that also comes in the backdrop of a U.S. clampdown on the industry. The SEC and various state investigators have increased scrutiny on several companies, including Celsius Network and Gemini Trust Co. that have gained immense popularity with retail investors for paying yields sometimes exceeding10%.
As part of its deal with regulators, BlockFi will no longer be able to open new interest-yielding accounts for most Americans. Speaking on the development, BlockFi spokesperson Madelyn McHugh stated,
“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 and Co. facing the heat
Crypto-lenders, in particular, have come under the prying eyes of the regulators as they have attracted several billions of dollars in deposits by promising yields much higher than those available through traditional savings accounts.
A representative of Gemini Trust said the firm was cooperating with an “industry-wide inquiry” into crypto-yield products. Celsius also stated that it was working with regulators to “operate in full compliance with the law”.
Downplaying reports of SEC going after the firm, Voyager spokesman said it was normal to be in ongoing communications with financial watchdogs. The SEC as of now hasn’t accused any of the above companies of wrongdoing but the fear remains.
The top agency has separately issued a warning to Coinbase Global Inc., the biggest U.S. crypto exchange, against going forward with a lending product, prompting the firm to halt the project last September.