On February 14, 2022, the U.S. Securities and Exchange Commission (SEC) announced an enforcement settlement (the Order) related to BlockFi Lending LLC (BlockFi), a digital asset borrowing and lending platform.1 The SEC found that BlockFi offered unregistered securities to U.S. investors, made material misrepresentations about its lending activities, and operated as an unregistered investment company. SEC Commissioner Hester Peirce published a dissent.2 On the same day, the SEC released an Investor Bulletin highlighting the key differences between a digital asset lending program and a traditional bank deposit account.3
Without admitting or denying the SEC’s findings, BlockFi entered into a joint settlement with the SEC and the North American Securities Administrators Association (NASAA) in which it agreed to pay $100 million in fines and penalties, cease offering its unregistered lending services to new U.S. investors, and attempt to bring its business within the provisions of the Securities Act of 1933 (Securities Act) and the Investment Company Act of 1940 (Company Act) within 60 days.4
This enforcement action demonstrates the SEC’s continued focus on the digital asset ecosystem. In light of this settlement, market participants involved with digital asset borrowing and lending activities should carefully consider how securities laws may apply, even in cases where the digital assets themselves may not be securities.
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