BlockFi fined $943,000 for not registering securities in Iowa; $100M settlement

BlockFi was found to have offered unregistered securities and misled information about its loan risks in a multi-state inquiry in the United States.

According to a June 14 press release, the Iowa Insurance Division fined cryptocurrency trading and lending platform BlockFi $943,000 for failing to register securities in the state and offering and selling securities in Iowa without being registered as a broker-dealer or agent.

The order was issued following the conclusion of a multi-state investigation conducted by the United States Securities and Exchange Commission (SEC) and securities regulators from 53 jurisdictions affiliated with the North American Securities Administrators Association (NASAA).

BlockFi will also pay $50 million in settlements to the SEC and another $50 million to the 53 investigating jurisdictions, according to the press release. The company has also been ordered to stop making false statements about securities.

Iowa Insurance Commissioner Doug Ommen said in the press release:

“While innovations, like cryptocurrencies, may provide for growth and evolution in the financial system, it is important that regulators ensure this occurs within an appropriate framework that protects investors while still facilitating responsible capital formation.”

BlockFi offered and sold unregistered securities and misrepresented the risk level in its loan portfolio, according to the investigation. According to the press release, BlockFi claimed in various website posts that its institutional loans were "typically" over-collateralized, which was found to be false.

According to the investigation, only 24 percent of BlockFi's institutional crypto loans in 2019, 16 percent of loans in 2020, and 17 percent of loans in the first half of 2021 were over-collateralized. According to the press release, BlockFi's claim of over-collateralized loans "suggested to investors that they had secured more protection from default than BlockFi had actually secured."

“Whatever investors’ knowledge or interest in cryptocurrency, investors need accurate information to base their decisions on.

Ommen said:

“Iowans are encountering new innovations in the investment area with the advent and greater adoption of cryptocurrencies, however, speculative investments such as these should be handled just as such – as speculative.  Iowans should make sure they are only investing what they may be willing to lose.”

According to the press release, BlockFi held approximately $14.6 million in assets from Iowa residents as of December 31, 2021, up from approximately $267,000 at the end of 2019.

At the time of publication, BlockFi had not responded to requests for comment.

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