Following investigations by the United States Securities and Exchange Commission (SEC) and other regulatory agencies, BlockFi, a top cryptocurrency lending company, has been barred from operating high-yield accounts for its clients in addition to being heavily penalized with a fine of $100M.
However, BlockFi did not appeal the decision and has agreed to settle the ongoing case against it and also discontinue the business of opening high-yield accounts for its primarily U.S based clients.
Madelyn McHugh, BlockFi’s Spokesperson, has said the company would not utter a word on the ongoing market rumors but added by assuring their clients that their assets are safe on the BlockFi platform. According to her, BlockFi Interest Account holders will enjoy their earned crypto interest as before.
The business model operated by BlockFi is based on offering customers actual interest rates for locking up their tokens like Ethereum, Bitcoin, and USD Tether in a secured saving account. The funds are then loaned to others by the company at exorbitant rates.
The high yields accrued from the savings account are an essential business segment of the company because it uses tokens that its clients are not looking to use for some specified period to fund its lending business. In return, holders of the high-yield saving account go home with handsome profits.
How BlockFi Was Exposed
The crux of the matter arose when the SEC looked into the activities of BlockFi in November; the SEC accused BlockFi of operating an unregistered securities account and using it to make high yields without the needed regulation.
Furthermore, the attention of the SEC was drawn after a handful of state regulators from various states, like New Jersey, Kentucky, Texas, and Alabama, issued a resisting order demanding for the BlockFi services to stop being offered to residents of their district.
It has been revealed that BlockFi is not the only cryptocurrency lending platform under official regulatory scrutiny. Among them is BlockFi’s direct rival, Celsius. Coinbase, on its part, halted its proposed high yield lending service after the SEC threatened to take legal action against it.
Interestingly, should the purported $100M settlement turn out to be correct, it could be the biggest ever action enforced against a cryptocurrency firm for misconduct.
Other Cases Pursued By The SEC
The SEC has already fined another blockchain-related business, Block.one, in 2019, the sum of $24 million for its role in carrying out the EOS coin offering. The fine is considered low, considering the $4.2 billion said to have been raised in the coin offering saga.
Telegram, a social messaging app, was forced to pay a fine of $15.5 million and asked to refund their investors $1.2 billion raised over its abandoned plan of launching the TON token in 2020.
Notwithstanding the above mentioned examples, state regulatory bodies will dish out more of these sanctions, and fines will be meted out on erring cryptocurrency businesses. How crypto-related companies view the recent happenings is best left to them.