NEWS RELEASE
COLORADO DIVISION OF SECURITIES
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The Colorado Division of Securities announced that a digital-asset financial services company, BlockFi Lending LLC (BlockFi), agreed to settlement terms to work with the Division to settle allegations of offers and sales of unregistered securities in the form of interest-bearing digital asset deposit accounts called BlockFi Interest Accounts (BIAs) to Colorado residents. As of December 31, 2021, BlockFi had 407,030 BIA investors in the US, of which 11,381 were Colorado residents.
BlockFi agreed to pay $50 million to the 53 NASAA member agencies and $50 million to the SEC. The 53 NASAA member agencies will share equally in their half of the settlement, with each receiving $943,396.22 after executing the appropriate consent orders. The Colorado Division of Securities is one of 32 NASAA member agencies that have already agreed to work with BlockFi to settle and more jurisdictions are expected to follow.
Early state securities actions brought by Alabama, Kentucky, New Jersey, Texas, Vermont, and Washington alleged BlockFi promoted its BIAs with promises of high returns for investors who purchased the lending products. It took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use the digital assets to generate a return and pay investors their promised interest. According to the filed state actions, BlockFi failed to comply with state registration requirements and, as a result, investors were sold unregistered securities in violation of state law and deprived of critical information and disclosure necessary to understand the potential risks of these lending products.
“The Colorado Division of Securities greatly appreciates the innovation that new technology brings to financial markets. At the same time, it is important for equity and consumer protection that businesses in financial services comply with applicable disclosure laws,” said Colorado Securities Commissioner Tung Chan. “This action by NASAA member agencies and the SEC will hopefully be helpful to other firms providing digital asset financial products and services in examining how to work toward complying with state and federal laws.”
Effective immediately, BlockFi will stop offering its BIAs to the public. BlockFi’s parent company, BlockFi Inc., represented it intends to file with state and federal regulators to offer and sell a new product called BlockFi Yield. As part of the settlement terms, BlockFi will cease allowing new investments in the BIAs until its securities are properly registered. BlockFi may continue to deploy digital assets for existing BIA investors and may continue to pay interest. Between February 14th and the date BlockFi Inc.’s securities are registered and qualified or permitted for sale with the states and SEC, current investors may keep their existing investments with BlockFi and will continue to earn interest under their initial agreement with the company. This measure is designed to protect the interests of existing investors while allowing BlockFi time to bring itself into compliance with state and federal laws.
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