BlockFi to pay $100 million to settle charges with the SEC over its crypto lending product

• The SEC charged BlockFi with failing to comply with laws related to proper registration of its lending services.
• BlockFi will pay $100 million in penalties as a result of the SEC investigation.

Cryptocurrency firm BlockFi Lending agreed to pay $100 million to settle charges with the Securities and Exchange Commission charged that it failed to properly register its services.

The SEC states that since March 2019, the firm offered customers interest-bearing accounts called BlockFi Interest Accounts, which paid a variable rate of return in exchange for a customer lending crypto to the company. These, according to the SEC, were unregistered securities offerings. The settlement is the SEC's first-ever with a crypto lending firm.

BlockFi will pay $50 million to settle the SEC's charges, and $50 million in additional fines to settle charges across 32 states.

"Today's settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940," SEC Chair Gary Gensler said.

In recent years, crypto traders have flocked to BlockFi and its competitors for higher yields in comparison to other bond issuers or banks. BlockFi, however, did not seek approval to act as a money manager, and it never registered its interest-bearing accounts with regulators, according the the SEC.

The company agreed to bring its business into compliance with the Investment Company Act within 60 days, as well as cease its unregistered offers and sales of its lending product.

"[The settlement] further demonstrates the Commission's willingness to work with crypto platforms to determine how they can come into compliance with those laws," Gensler said.

Moving forward, BlockFi will stop offering these services to US accounts. BlockFi did not admit or deny any wrongdoing as part of the settlement.

Other crypto lending platforms that offer similar securities to BlockFi should "take immediate notice of today's resolution and come into compliance with federal securities laws," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement.

With Gensler at the helm, the SEC has pushed for more transparency across the financial services sector. Earlier this month, the SEC proposed a sweeping crackdown on hedge funds and private equity firms. The SEC head has also been particularly focused on crypto.

In January, Gensler said he wanted to bring crypto exchanges into the regulator's purview and has described the sector as the "wild west".