The battle between cryptos and regulators seems to have taken yet another victim – the BlockFi crypto lending platform. The U.S. Securities and Exchange Commission (SEC), among other state regulators, agreed with BlockFi for a settlement fee of $100 million.
The settlement turns out to be among the largest paid by a crypto company. BlockFi, based in New Jersey, will also have to cease offering high-yield accounts to U.S residents, which was the main reason for the penalty.
Indeed, BlockFi’s high-yield accounts offer annual returns as high as 9.5%, according to its website. Traditional savings accounts, in contrast, only yield 0.06% annually. However, unlike bank deposits, the federal government does not insure digital-asset savings accounts.
The first clash between the U.S SEC, state regulators, and BlockFi was in November 2021, when the financial watchdog put BlockFi, as well as several other crypto companies, under investigation to determine whether BlockFi accounts are similar to securities.
According to the settlement, BlockFi has to pay a $50 million fine to the SEC and another $50 million to various states, including Alabama, Texas, Kentucky, New Jersey, and Vermont.
The settlement comes amid SEC Chair Gary Gensler alarming on fast-growing crypto firms, stating that some are offering financial services without adhering to benchmark investor-protection rules that banks, brokers, and other financial entities have long had to comply with.
“We have been in productive ongoing dialogue with regulators at the federal and state level. We do not comment on market rumors,” a BlockFi representative commented, adding that “We can confirm that clients’ assets are safeguarded on the BlockFi platform, and BlockFi Interest Account clients will continue to earn crypto interest as they always have.”
Apart from the New Jersey-based crypto landing platform, other crypto companies are also in the regulatory crosshairs.
In November 2021, the SEC started probing Celsius Network, Voyager Digital, and Gemini Trust. However, Gemini confirmed that the company is cooperating with regulators in an industry-wide inquiry into crypto-yield products. Celsius also commented that the company is working with regulators to “operate in full compliance with the law”.
The penalties BlockFi has to pay are among the harshest imposed against a cryptocurrency company. However, despite the penalty, Madelyn McHugh of BlockFi ensured that customers’ funds are safe on the platform.
SEC vs Ripple
The U.S. SEC is leading a fierce battle with cryptocurrencies and crypto exchanges for offering unregistered securities. One of those battles is with Ripple, once the third-largest crypto in the world.
However, the case of SEC vs Ripple Labs is following a curvy path, as in the last days of 2021, Empower Oversight filed a lawsuit against the SEC, alleging that former SEC officials were biased against Ripple Lab and XRP. In the lawsuit, Empower Oversight accused former SEC official William Hinman of conflict of interest, as Hinman received millions of dollars from his former employer, Simpson Thacher, who is part of a group that promotes Enterprise Ethereum.
Furthermore, lawyers petitioning for non-US XRP investors to demand an investigation into the SEC’s actions against Ripple Lab.
Market reaction
Despite the SEC scrutiny, the overall crypto market did not act and remained on its downwards weekly trajectory. Almost all of the crypto projects are seeing negative price action, both daily and weekly, with the overall crypto market capitalization shrinking to $1.9 trillion.
The crypto market is still in sync with global markets, as DOW, S&P500, and NASDAQ are down around 2%.