the staff of the Ridgewood blog
Jersey City NJ, Acting Attorney General Matthew J. Platkin and the Bureau of Securities today announced that a Jersey City-based financial services company, BlockFi Lending, LLC, has reached a $100 million settlement with state and federal securities regulators over the company’s offers and sales of unregistered securities in the form of interest-bearing digital asset deposit accounts called BlockFi Interest Accounts.
Of the total settlement amount, $50 million will be paid to the U.S. Securities and Exchange Commission, and up to $50 million will be divided equally among participating members of the North American Securities Administrators Association. New Jersey’s share will be $943,396.22.
The Bureau of Securities issued a Summary Cease and Desist Order against BlockFi in July 2021, making it one of the first securities regulators in the country to take action against the company. At the time, the Bureau alleged that BlockFi had raised at least $14.7 billion worldwide through the sale of unregistered securities, and had used those funds to finance its cryptocurrency lending operations and proprietary trading. As of December 31, 2021 BlockFi had 407,030 BlockFi Interest Account investors in the United States.
“Cryptocurrency-related investments may offer investors something new, but they must still follow the rules,” said Acting Attorney General Platkin. “Today’s action shows that companies providing digital asset financial products and services must comply with state and federal law, and demonstrates New Jersey’s commitment to protecting investors in these new markets.”
“The Bureau continues to caution investors to look beyond the promise of heightened returns and to carefully consider the risks,” said Acting Bureau Chief Amy Kopleton. “Interest-bearing cryptocurrency accounts lack the regulatory oversight needed to protect New Jersey investors, and the Bureau will continue to enforce the laws as to these products.”
Today’s settlement comes amidst rising concerns over the proliferation of “decentralized” and digital asset-based financial products and services targeting retail investors.
Many of these products and services are similar to traditional financial services offered by banks and brokerages, but without the regulatory safeguards provided by registered firms and products. For example, registered firms must truthfully disclose all known material facts and explain the risks associated with their investments, while the Federal Deposit Insurance Corporation, National Credit Union Administration, and the Securities Investor Protection Corporation insure depositors and investors against certain kinds of losses.
Financial service firms operating in innovative fintech markets may not be complying with important laws that protect retail clients, and investors may not have access to the information necessary to conduct due diligence and make fully informed decisions.
BlockFi entered into the settlement with the Bureau without admitting or denying the findings of fact and conclusions of law, which include that BlockFi offered and sold unregistered securities, failed to register an agent as required to sell those securities, and misrepresented on its website the collateralization of certain loans to its institutional clients.
Effective immediately, BlockFi will stop offering its BlockFi Interest Accounts to the public. BlockFi’s parent company, BlockFi Inc., represented it intends to file with state and federal regulators to offer and sell a new product called BlockFi Yield. As part of the settlement terms, BlockFi will cease allowing new investments in the BlockFi Interest Accounts until its securities are properly registered.
BlockFi may continue to deploy digital assets for existing BlockFi Interest Account investors and may continue to pay interest. Between February 14, 2022, and the date BlockFi Inc.’s securities are registered and qualified or permitted for sale with the states and U.S. Securities and Exchange Commission, current investors may keep their existing investments with BlockFi and will continue to earn interest under their initial agreement with the company. This measure is designed to protect the interests of existing investors while allowing BlockFi time to bring itself into compliance with state and federal law.
Today’s settlement resulted from a joint effort between state securities regulators and the U.S. Securities and Exchange Commission. The Bureau would like to thank the Commission for its collaboration and assistance.
The Bureau’s investigation was handled by Investigator Delfin Rodriguez of the Bureau of Securities, within the Division of Consumer Affairs. The Bureau is represented by Deputy Attorney General Evan A. Showell, Assistant Section Chief of the Securities Fraud Prosecution Section within the Division of Law’s Affirmative Civil Enforcement Practice Group, along with Section Chief Victoria A. Manning and Assistant Attorney General Brian F. McDonough.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New Jersey-based financial professionals or investments.