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Wednesday, July 24, 2024

BlockFi, a cryptocurrency company, has reached a settlement with the Federal Trade Commission for failing to register loan products

The Securities and Exchange Commission has reached a settlement with BlockFi Lending over registration failures totaling $100 million. This is the first settlement reached since the regulator warned last fall that it would take action against cryptocurrency firms offering loan products that failed to register them as securities or to register themselves as investment companies if they did not comply with the securities and exchange commission’s rules.

Gary Gensler, the chairman of the Securities and Exchange Commission, said in a statement on Monday that crypto markets must adhere to time-tested securities laws such as the Securities Act of 1933 and the Investment Company Act of 1940.

According to the Federal Trade Commission, BlockFi, located in New Jersey, has been providing clients the opportunity to lend the firm digital assets in exchange for interest on such loans since March 2019. In essence, regulators claimed, the scheme was a kind of investment contract in which users leased their money with the prospect of receiving more funds at a later date. Moreover, BlockFi should have registered the securities and should have established itself as an investment business, according to the Securities and Exchange Commission (SEC).

Despite the fact that the settlement was the first of its type, the possibility of S.E.C. inspection had already halted plans by Coinbase, the biggest bitcoin exchange in the United States, to introduce a comparable loan programme. Coinbase officials maintained that their new product should not be treated as a security, but they ultimately decided to abandon its plans for an interest-generating Lend product in September, citing regulatory concerns. The deal, according to BlockFi’s chief executive, Zac Prince, is a significant step forward.

As Mr. Prince put it in a statement, “today’s milestone is yet another example of our pioneering efforts in obtaining regulatory clarity for the larger industry and our customers, just as we achieved with our initial product – the crypto-backed loan.”

Mr. Prince said that BlockFi was prepared to introduce a new version of its loan product called BlockFi Yield, which would be compliant with S.E.C. norms and regulations.

Existing clients of BlockFi Interest Accounts, the business’s current loan product, will be allowed to keep their outstanding loans active and continue to receive interest as normal, but they will not be able to add to their positions, according to the company. The corporation also said that it will no longer be supplying the product to new consumers in the United States. BlockFi has 60 days to comply with the Securities and Exchange Commission’s registration requirements.

According to the S.E.C., half of the $100 million settlement will go to the agency, with the other half going to 32 states whose regulators had pursued identical accusations against BlockFi, according to the commission.

Jonathan James
Jonathan James
I serve as a Senior Executive Journalist of The National Era
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