Chris Prentice

WASHINGTON (Reuters] – BlockFi Inc’s subsidiary agreed Monday to pay $100 million and 32 states respectively to resolve charges regarding a New Jersey crypto lending product it offered to more than 600,000 investors.

As U.S. regulators worry about the safety of investors and other systemic risks associated with crypto, they are taking steps to curb growth. This settlement also demonstrates Gary Gensler, the chair of SEC,’s strategy for requiring crypto companies to comply with U.S. securities laws. It hoped that other companies would follow the example of Gensler’s SEC chair.

According to it, this penalty is $50 million for the state regulators and $50 millions to the SEC. It’s the biggest fine that the federal watchdog, Federal Watchdog, has ever imposed upon an issuer of cryptocurrency asset securities.

BlockFi Lending LLC took a violation of the regulations by offering an interest bearing lending product to customers without having it registered with regulators. According to the SEC, the company and its affiliates had approximately $10.4 billion of assets from investors as of December 8, which is close to 400,000 Americans.

BlockFi was accused of not complying with state registration rules. This is according to the North American Securities Administrators Association, which co-ordinated multi-state probe. According to the NASAA, more jurisdictions will be joining the settlement.

BlockFi did not admit or deny the findings of the SEC. However, it stated in a statement that the resolution was an example of its “pioneering efforts to secure regulatory clarity for our clients and the wider industry.”

The company stated that BlockFi will offer an alternate product as part of the settlement. It is expected to become the first cryptocurrency interest-bearing security to register with the SEC. BlockFi’s willingness and ability to cooperate led to the lower charges.

Adhering to U.S. laws governing company’s registration and disclosure is “critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space,” said Gurbir Grewal, director of the SEC’s enforcement division.

Gensler has stated that he wants the sector of digital assets to be included in the current regulatory framework. The SEC is now more vigilant about crypto-exchanges and lending institutions.

SEC targets crypto lending, in particular. Coinbase (NASDAQ) Global Inc claimed that in September the SEC threatened to sue it if it continued with its plans for a similar product.

Numerous crypto-asset companies believe that the securities regulations currently in place are unsuitable and that the sector requires new rules.

BlockFi sold and offered BlockFi Interest Accounts (or BIAs) from March 2019 through present. These accounts allowed crypto asset investors to loan BlockFi to them in return for a promise of a monthly variable interest payment.

According to law, BlockFi failed to register its product with the SEC. According to the SEC, BlockFi broke other rules when it failed to register as an investor firm.

BlockFi also understated risks related to its lending activities. They claimed that most of them were over-collaterized.

In the last year BlockFi was under scrutiny by state regulators. New Jersey, among others, ordered the company to cease selling interest-earning crypto accounts.

BlockFi won’t be able to offer this product to U.S. investors. While it will still be able to manage existing accounts, customers will no longer have the ability to add to them. It will conform to the laws regarding investment companies.