SEC on Cryptocurrency Interest-Bearing Deposits

On February 14, 2022, the Securities and Exchange Commission (the “SEC”) issued an order In the Matter of BlockFi Lending LLC (“BlockFi”), ordering it to pay a $50 million civil penalty, to cease and desist its violative actions and to comply with certain other undertakings. The SEC determined that the BlockFi Interest Accounts, among other things, were unregistered securities. Investors in these accounts lent crypto assets to BlockFi in exchange for variable monthly interest payments that BlockFi earned by deploying the assets through on-lending and in other manners. Another $50 million is owed to 32 states that also sued BlockFi, for a total of $100 million. On the same date, the SEC also issued a bulletin in which it warned investors that interest bearing accounts for holding cryptocurrency assets are not the same as bank deposits as these accounts are among other things unregulated, volatile and do not bear Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protection.