It may seem unlikely that the founder and CEO of Blockfi, Zac Prince, described a prosecution which led to a fine of $ 100 million for his business as “a victory not only for Blockfi, but for the wider industry of the cryptocurrency”, but that is really what he said. And, he could be right, although he remains to be seen for the moment.
The colony
Founded in 2017, Blockfi is a crypto financial institution based in New Jersey with a team of 850 and one million customers worldwide. Its popular product of the Blockfi interest account, with half a million users, including 407,000 in the United States, was the subject of an order to stop and abstain from the Securities and Exchange Commission (SEC) and 32 prosecutors of State on July 20, 2021. 14.7 billion dollars worldwide. »»
On February 14, the SEC announced that it billed Blockfi to “not record the offers and sales of its retail cryptography loan”. Blockfi was also accused of misleading investors by declaring that its institutional loans were “generally” over-collateralized when, in fact, no more than 24% of loans. In the order to establish procedures, it should be noted that it was “operational surveillance” which occurred after it became clear that large financial institutions were simply not ready to over-collateralize their loans.
Finally, a regulation was concluded under which Blockfi agreed to pay a penalty of 50 million dollars to the dry and an additional $ 50 million to the 32 states without admitting reprehensible acts or responsibility. In addition, Blockfi “would try to bring its activities into the provisions of the law on investment companies within 60 days”. In the meantime, American customers cannot add funds to their accounts of Blockfi interest and new accounts cannot be opened in the United States or the United States. The company said that it would create a new dry -conforming loan product, a Blockfi return and Blockfi interest accounts will be converted into a new product.
First after the post
There is Blockfi’s victory: it will be regulated.
Troutman Pepper’s partner, Stephen Piepgrass, whose areas of interest include state prosecutors, called the progression of events “the natural evolution of any business”.
“First, they operate in a gray regulatory space, then those who can comply with the light,” Piepgrass told Cointelegraph. By being the first to reach the regulations, Blockfi can “help negotiate new conditions” to its advantage.
Piépgrass assures that there is even more behind the scenes with the efforts of the dry and the attorney general of the State to regulate cryptographic loans. A certain activity has already been seen. Coinbase was dissuaded to open its product Coinbase Lend by the threat of legal action of the dry last year. Celsius, Gemini and Voyager Digital are known to be in dry examination.
“Crypto loan platforms offering titles such as Blockfi (accounts of interest) should take up immediately the resolution of today and comply with federal securities laws,” said Gurbir S. Grewal, Director of the Division of the Application of the SEC and former Attorney General of New Jersey, in the announcement of the announcement. “Membership of our registration and disclosure requirements is essential to provide investors with the information and transparency they need to make well -informed investment decisions in the space of cryptographic assets.”
Rocky path to compliance
Not everyone agrees to say that it is an unrealized victory for the cryptocurrency industry or for cryptocurrency users. The SEC commissioner, Hester Peirce, in a dissident statement on the Blockfi regulations, stressed potential results which would be a little less than victorious. “Rather than forcing transparency around retail crypto loan products,” she wrote, “today’s regulation can prevent them from being offered to retail customers in the United States.”
Peirce also noted the complexity of the realization of the provisions of the law on investment companies and called the proposed time of 60 days, even with an extension of 30 days, “extremely ambitious”. She could have added that there is no guarantee that the new Blockfi rendering will be approved.
Philip Moustakis, former main lawyer for the Sec de la SEC Division and currently advisor to Seward & Kissel, described the pursuit of Blockfi “a shot through the bow of cryptographic loan platforms”. The case is important, he said, because Blockfi is the first “important and important” crypto lender to be prosecuted.
Moustakis told Cointelegraph that he would have liked to see a “more explicit path to compliance”. Without “a large-based application action (…) with carrots and concrete sticks”, he said, the dry could be forced to investigate the crypto loan platforms.
For the dry, said Moustakis, the case of Blockfi represents “the next level of difficulty” in its current thrust to regulate the cryptocurrency. The fine of $ 100 million is greeted as the largest ever paid by a cryptocurrency company.
It will take a while to see the full impact of prosecution by the dry of Blockfi. However, the repercussions have already started. Nexo would have ceased to pay interest to American users from his Earn interest product on February 18. The company said that its product of gay interest “in its current form will not be available for new customers, until the restructuring of the EAG interest product and the registration process with relevant regulatory organizations are finalized, according to recently received advice.”
