BlockFi will pay $50 million to settle similar claims brought by law enforcement and securities regulators in 32 states. BlockFi did not admit or deny wrongdoing.
Founded in 2017, BlockFi’s popularity exploded after it began offering its interest-bearing accounts that allowed investors to earn yield on their crypto holdings. BlockFi would then lend out those digital assets to other investors or use them to purchase traditional investment products.
The company’s promise of high yields drew in hundreds of thousands of customers— including nearly 400,000 in the U.S. — with total assets pegged at more than $10 billion as of December.
Its claims about the safety of the reserves backing its loans were often misleading and overstated, according to the SEC’s enforcement order. The agency said the interest-bearing accounts — known as BlockFi Interest Accounts — represented unregistered securities.
Despite the hefty civil penalties, BlockFi celebrated the SEC’s order for giving it a path forward as a regulated entity. Existing U.S. customers will be able to transfer holdings from their BlockFi Interest Accounts to the new BlockFi Yield product once the company completes its SEC registration process.
“From the day we started BlockFi, we have always known that strong engagement with regulators would be critical for the adoption of financial services powered by cryptocurrencies,” BlockFi founder and CEO Zac Prince said in a statement. “Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product — the crypto-backed loan.”