The North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) announced a $100 million settlement with BlockFi Lending.
The settlement followed an investigation into BlockFi Lending concerning its lending products and practices. Specifically, the investigation focused on the sale of unregistered securities to retail investors through BlockFi interest accounts (BIAs).
SEC and NASAA allege that BlockFi promoted its BIAs with promises of high returns for investors who purchased the products. BlockFi allegedly failed to comply with state registration requirements, and, as a result, investors were sold unregistered securities in violation of state law. Also, the regulators alleged that investors were deprived of critical information and disclosures necessary to understand the potential risks of these lending products.
To settle its past unregistered conduct, BlockFi has agreed to pay $50 million to NASAA member jurisdictions and $50 million to the SEC for a total settlement of $100 million. NASAA members will share equally in the settlement. The 53 U.S. jurisdictions that are members of NASAA are each able to claim a settlement of $943,396.22 after executing the appropriate consent orders.
It also clarifies that firms must comply with applicable laws and regulations to legally offer their investments to investors.
“Compliance with the securities laws serves the dual purposes of protecting investors and facilitating responsible capital formation,” NASAA President and Maryland Securities Commissioner Melanie Senter Lubin said. “Innovation in the capital markets is necessary for the growth and evolution of our financial system, and NASAA state securities regulators will ensure this occurs within the appropriate regulatory framework.”
BlockFi agreed to stop selling its products in all U.S. states and territories until they are registered in compliance with state and federal law. However, BlockFi may continue to deploy digital assets for existing BIA investors and may continue to pay interest. When BlockFi Inc.’s securities become registered and qualified or permitted for sale with the states and the SEC, current investors may keep their existing investments with BlockFi and will continue to earn interest under their initial agreements with the company.
“State securities regulators recognize the potential value of new technology for the benefit of Main Street investors, but this new technology needs to be balanced with appropriate laws and regulations,” NASAA Enforcement Section Committee Chair and Alabama Securities Commission Director Joseph Borg said. “This settlement recognizes the important work of state securities regulators and the SEC in making sure that those who are investing their hard-earned money understand the risks and rewards of their decisions.”
A multi-state working group, coordinated through NASAA, conducting the review and investigation of BlockFi. NASAA is a nonprofit association of state, provincial, and territorial securities regulators in the United States, Canada, and Mexico. It has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.