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Peter Thiel-Backed Crypto Start-Up BlockFi to Pay $100 Million in Settlement With SEC, 32 States

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  • BlockFi has agreed to pay $100 million to the SEC and 32 states to settle charges related to its retail crypto lending product.
  • The service, BlockFi Interest Accounts, let users accrue interest on holdings of bitcoin and other cryptocurrencies.
  • BlockFi says it is now applying to register with the SEC to offer a new crypto savings product called BlockFi Yield.

Cryptocurrency firm BlockFi said Monday it has agreed to pay $100 million to the U.S. Securities and Exchange Commission and several states to settle charges related to its popular crypto lending product.

BlockFi, which is backed by Silicon Valley investor Peter Thiel, touts itself as a banklike platform for crypto users. The company offers a popular savings product that lets clients accrue interest on their digital currency holdings.

BlockFi advertises annual percentage yields as high as 9.25% on its website, much higher than the average savings rates on offer from incumbent financial institutions. The firm says it is able to offer such rates as large institutional investors are willing to pay more to borrow the deposits.

Bitcoin and other digital assets are not regulated, however, and authorities have grown concerned by a lack of oversight for crypto-related services that more closely resemble traditional financial products that are regulated.

The SEC said Monday it had charged BlockFi with failing to register its retail crypto lending product, BlockFi Interest Accounts, and with violating the registration provisions of the Investment Company Act of 1940.

BlockFi agreed to pay the SEC $50 million to settle the charges, without admitting or denying wrongdoing or liability. It will also pay a further $50 million to 32 states over similar charges.

"This is the first case of its kind with respect to crypto lending platforms," SEC Chair Gary Gensler said. "Today's settlement makes clear that crypto markets must comply with time-tested securities laws."

Following the settlement, BlockFi said U.S. customers will no longer be able to open new interest accounts with the firm. Clients can continue receiving interest on their existing holdings, but cannot add new assets to their accounts, the company said.

BlockFi says it is now applying to register with the SEC to offer a new crypto savings product called BlockFi Yield. The company added it intends to eventually move existing U.S. users over to the new service, unless they decide against it. BlockFi said the move provides "regulatory clarity" for the industry.

"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 CEO and founder 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," he added.

The SEC also issued a warning to other crypto lenders that offer services like BlockFi's, with Gurbir S. Grewal, director of the agency's enforcement division, saying they "should take immediate notice of today's resolution and come into compliance with the federal securities laws."

The watchdog is reportedly scrutinizing Celsius, Gemini and Voyager Digital as part of an inquiry into crypto lending practices, according to Bloomberg. All three firms said they are cooperating with regulators.

Last year, Coinbase shelved plans to launch its own interest-earning crypto product after the SEC threatened to sue the company. The crypto exchange's CEO, Brian Armstrong, got into a public spat with the watchdog, accusing it on Twitter of "sketchy behavior."

Founded in 2017, BlockFi has raised a total of over $500 million in venture funding to date, according to CB Insights data, and was last privately valued at $3 billion.

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