BlockFi fined $943,000 for not registering securities in Iowa; to pay $100M in settlement
A multi-state investigation in the U.S. found that BlockFi has sold unregistered securities and misrepresented facts about its loan risks.
Cryptocurrency trading and lending platform BlockFi has been fined $943,000 by the Iowa Insurance Division for failing to register securities in the state and offering and selling securities in Iowa without being registered as a broker-dealer or agent, according to a June 14 press release.
The order was released after the conclusion of a multi-state investigation conducted by the U.S.
Securities and Exchange Commission (SEC) and securities regulators from 53 jurisdictions, that were part of the North American Securities Administrators Association (NASAA).
According to the press release, BlockFi will also pay settlements of $50 million to the SEC and another $50 million to the 53 investigating jurisdictions.
The company has also been ordered to cease and desist from making false claims regarding securities.
Iowa Insurance Commissioner Doug Ommen said in the press release:
“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 investigation found that BlockFi offered and sold unregistered securities and misrepresented the risk level in its loan portfolio.
In various website posts, BlockFi claimed that its institutional loans were “typically” over-collateralized, which was found to be false, the press release stated.
Only 24% of BlockFi’s institutional crypto loans in 2019, 16% of the loans in 2020, and 17% of the loans in the first half of 2021 were over-collateralized, according to the investigation.
Therefore, BlockFi’s claim of over-collateralized loans “suggested to investors that they had secured more protection from default than BlockFi had actually secured,” the press release stated.
Ommen said: “Whatever investors’ knowledge or interest in cryptocurrency, investors need accurate information to base their decisions on.
“Iowans are encountering new innovations in the investment area with the advent and greater adoption of cryptocurrencies,
however, speculative investments such as these should be handled just as such – as speculative.
Iowans should make sure they are only investing what they may be willing to lose.”
As of December 31, 2021, BlockFi held around $14.6 million in assets from Iowa residents, increasing from around $267,000 at the end of 2019, the press release said.
BlockFi did not respond to requests for comment at the time of publishing.
BlockFi cutting 20% of staff to prioritize profitability goal
BlockFi announced it will let 20% of its staff go to remain profitable in the current market conditions.
Cryptocurrency lending platform BlockFi became the fourth crypto company to downsize in order to survive the current market by announcing that it will let 20% of its staff go.
BlockFi had more than 850 personnel before the downsizing decision, according to a June 13 blog post, which means more than 170 were fired.
The company attributed the downsizing to the negative changes in the macroeconomic environment and said:
“Our number one goal has been to achieve profitability so that we can own our destiny as we navigate what many expect to be an extended global recession.”
BlockFi also said it has been reducing marketing expenses and executive compensation, eliminating non-critical vendors, and slowing down hiring processes.
According to the announcement, BlockFi will also connect the staff they let go with the company’s partners who may be interested in hiring.
Firing spree in the cryptosphere
BlockFi became the fourth crypto company to let its staff go.
The firing spree started with the crypto exchange platform Gemini when it announced it will let 10% of its staff go to survive the crypto winter on June 2, 2022.
Coinbase followed Gemini’s footsteps two days later by un-hiring new recruits and suspending the hiring processes on June 4, 2022.
Finally, on the same day as BlockFi, Crypto.com also announced that it is downsizing by 5% and letting 260 people go.
All four companies said they were reluctantly taking these decisions so they could survive in the current market conditions.
Binance is the outlier
While the firing trend is spreading across crypto companies, Binance said it is doing well enough to increase its headcount.
Binance’s CEO Changpeng Zhao recently spoke at the Consensus 2022 Conference and said:
“We have a very healthy war chest, we in fact are expanding hiring right now. If we are in a crypto winter,
We will leverage that, we will use that to the max. we’re kicking into high gear in terms of M&A activity.”
He said Binance doesn’t feel the need to downsize because they didn’t spend much on expensive commercials or partnerships.
Referring to Crypto.com’s expenses, Zhao said:
“During bull markets, everyone’s starting their own projects, everyone’s paying everyone ridiculous compensation,”
