By Tim Hakki
2 min read
Celsius isn’t the only decentralized finance (DeFi) lending platform having a bad week; yesterday, competitor BlockFi was asked to pay a $943,396.22 fine from the state of Iowa’s Insurance Division Fines (IID) for selling unregistered securities.
The IID fine is part of a broader multi-state investigation that has resulted in BlockFi agreeing to pay a total of $100 million to the United States Securities and Exchange Commission (SEC) and 53 different jurisdictions.
Regulators previously determined that BlockFi has to pay out $50 million to the SEC and up to $50 million for each jurisdiction.
Iowa Insurance Commissioner Doug Ommen said in a statement: “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 statement goes on to allege that BlockFi had misrepresented its institutional loans as over-collateralized in “multiple website posts.” According to the IID, less than a quarter of the loans have been over-collateralized in the years from 2019 to 2021. BlockFi thus stands accused of selling securities that were not actually secured.
BlockFi’s business model offers customers high interest rates for locking up cryptocurrencies like Bitcoin, Ethereum and Tether into savings accounts. The company then loans those funds out at higher rates. But the SEC alleged back in November that these BlockFi Interest Accounts, which deliver yields between 5 and 10%, are unregistered securities.
The regulatory scrutiny came after a quintet of state securities regulators—from Alabama, Kentucky, New Jersey, Texas and Vermont—issued show-cause or cease-and-desist orders demanding that BlockFi cease offering products to their residents.
In addition to the $100 million penalty back in February, BlockFi also agreed to discontinue offering high-yield accounts to new U.S. customers, according to Bloomberg.
On Monday, BlockFi announced it would be cutting staff “by roughly 20%” due to “a dramatic shift in macroeconomic conditions worldwide.”
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