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Iowa Insurance Division orders BlockFi to pay $943k fine over alleged unregistered securities offering

The Iowa Insurance Division (IID), the regulator in charge of securities sales in the state of Iowa, has directed the digital currency lending platform BlockFi to pay an administrative fine of $943,396.22.

In an announcement of the action, the IID explained that the company was found to be in violation of the state’s Securities Act. It alleged BlockFi for offering and selling securities not registered or permitted for sale in the state from as far back as 2019. 

The IID also said it found that BlockFi did not register as a broker-dealer or agent in the state. In addition, BlockFi’s claims that its loan portfolio was over-collateralized amounted to a misrepresentation and omission about the level of risk involved for investors. 

“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 Iowa Commissioner for Insurance, Douglas M. Ommen said in the announcement. 

The directive was given through a consent order signed by Ommen. The order also directs BlockFi to cease and desist “from making any untrue statement of material facts regarding securities.”

Will other digital currency lenders be targeted?

The order is part of an investigation by the Securities and Exchange Commission (SEC) and 32 state-level securities regulators. From the investigation, BlockFi was ordered to pay a total of $100 million in fines, $50 million to the SEC, and another $50 million to the state regulators. 

BlockFi’s flagship offering, the BlockFi Interest Account (BIA), which offers investors an APY of up to 15%, was the main target of the joint regulatory action. The disgruntled states included Texas, New Jersey, Alabama, Kentucky, and Vermont, among others. 

The turn of events has likely contributed to BlockFi’s current financial troubles that is seeing the company lay off 20% of its employees. The company’s founders said in an announcement that the move, along with other cost-cutting measures, will help it stay profitable. 

It remains unclear that the regulatory action against BlockFi will set a regulatory precedent for other digital currency lenders operating in the United States. SEC Chairman Gary Gensler recently warned investors to beware of digital currency lenders offering unrealistic returns.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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