PROVIDENCE – A New Jersey-based financial services company will pay nearly $1 million to Rhode Island for promising high-return investments on risky, unregistered cryptocurrency loans, the R.I. Department of Business Regulation Securities Division announced Thursday.
The payment from BlockFi Lending LLC comes as part of a larger $100 million settlement with the U.S. Securities and Exchange Commission and the North American Securities Administrators Association. The SEC brought charges against BlockFi Lending in February for violating state and federal investment laws when selling cryptocurrency-backed loans known as BlockFi Interest Accounts to more than 400,000 retail investors nationwide, including more than 1,500 Rhode Island residents, according to a news release.
According to the SEC, BlockFi Lending did not register its loans according to state laws but illegally sold them to investors anyway, letting them bypass typical disclosures and other information required to share when selling investments. The SEC also alleged that the company made “false and misleading statements” on its website when describing the risk of its loans to potential investors.
Described by SEC Chairman Gary Gensler as a “first of its kind case,” the charges and settlement highlight the need to regulate cryptocurrency products and lending platforms, which have skirted the traditional regulations and safeguards that traditional financial institutions have to follow.
“State securities regulators recognize the value new technology brings to financial markets,” Elizabeth Kelleher Dwyer, the state’s superintendent of financial services, said in a statement. “Complying with existing laws and regulations promotes competitive capital markets and continued investor protection. This action by [the] NASAA member agency and the SEC sets an example for other firms providing digital asset financial products and services of how to work toward complying with state and federal law.”
Under the settlement, BlockFI will pay $50 million directly to the SEC and $50 million to NASAA, which will be split equally among its member agencies, including Rhode Island.
The $943,396.22 payment to Rhode Island will be used to “remedy” its prior illegal sales to 1,554 Rhode Island investors, the release stated
Also as part of the settlement, BlockFi has stopped selling its BlockFi Interest Accounts, and will not take on any new investors until it registers its products at the state and federal level. Existing investors are allowed to keep their investments and earn interest under their prior agreements with the company until state and federal registrations are filed, the release stated.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
