BlockFi Faces Fine of More Than $943,000 For Improper Registration

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Block­Fi is far from  hav­ing a peace­ful sea­son.  Not only the cryp­to indus­try is suf­fer­ing the hits of a bear mar­ket, now the cryp­to lend­ing plat­form is fac­ing a near­ly $1 mil­lion fine imposed by the State of Iowa with an addi­tion­al $100 Mil­lion to be paid to the SEC and oth­er US jurisdictions.

On June 14, the Iowa Insur­ance Divi­sion Fines (IID) ordered Block­Fi to pay an admin­is­tra­tive fine of over $943,000 for fail­ing to reg­is­ter as a secu­ri­ties trad­ing platform.

Accord­ing to a state­ment issued by Doug Ommen, Iowa Insur­ance Com­mis­sion­er, Block­Fi will have to pay $943,396.22 for offer­ing and sell­ing secu­ri­ties in the State of Iowa with­out the prop­er reg­is­tra­tion and reg­u­la­to­ry approval. In addi­tion to that, they ordered the plat­form to cease oper­a­tions immediately.

This fine fol­lows a pre­vi­ous set­tle­ment in which Block­fi paid over $100 Mil­lion in penal­ties after fail­ing to com­ply with the reg­u­la­tions relat­ed to its cryp­to lend­ing prod­uct. The com­pa­ny paid the fine and restruc­tured its oper­a­tions short­ly after.

Regulators Seek to Guarantee “Responsible” Investments

Accord­ing to Ommen, reg­u­la­tors must pro­tect res­i­dents from any invest­ments that do not have an appro­pri­ate frame­work to guar­an­tee “respon­si­ble” invest­ment. That is why he calls on Iowans to cor­rob­o­rate the legal­i­ty of any type of invest­ment plat­form with the IID before engag­ing in any finan­cial decision.

“While inno­va­tions, like cryp­tocur­ren­cies, may pro­vide for growth and evo­lu­tion in the finan­cial sys­tem, it is impor­tant that reg­u­la­tors ensure this occurs with­in an appro­pri­ate frame­work that pro­tects investors while still facil­i­tat­ing respon­si­ble cap­i­tal formation,”

The order fol­lowed a mul­ti-state inves­ti­ga­tion involv­ing the SEC and var­i­ous state secu­ri­ties reg­u­la­tors from 53 juris­dic­tions. The reg­u­la­tors deter­mined that Block­Fi must pay set­tle­ments of up to $50 mil­lion to each juris­dic­tion, in addi­tion to $50 mil­lion to the SEC.

As report­ed by Cryp­toPota­to, on June 14, Block­Fi announced the lay­off of at least 20% of its more than 850 employ­ees due to the “dra­mat­ic shift in macro­eco­nom­ic con­di­tions worldwide.”

IIDF: BlockFi’s Loans Were Not Overcollateralized

The Iowa Insur­ance Divi­sion Fines also argued that Block­fi lied to its cus­tomers. The lend­ing plat­form claimed that its insti­tu­tion­al loans were “typ­i­cal­ly” over-col­lat­er­al­ized when, accord­ing to reg­u­la­tors’ inves­ti­ga­tions, they were not.

Accord­ing to the Iowa Insur­ance Com­mis­sion­er, this sit­u­a­tion led Iowans to invest their mon­ey in a plat­form that offers spec­u­la­tive invest­ments with­out inform­ing its clients.

In ear­ly June, BlockFi’s val­u­a­tion fell from over $5 bil­lion in ear­ly 2021 to just $1 bil­lion. This reflects the company’s prob­lems fac­ing a tight coor­di­nat­ed scruti­ny from regulators.

There­fore, although the com­pa­ny has not yet made an offi­cial state­ment on the new pay­ment order pro­mot­ed by the IID, the sig­nif­i­cant fig­ure could seri­ous­ly affect its stability.

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