SEC Temporarily Waives $30M Fine, Orders BlockFi to Pay Investors

The U.S. Securities and Exchange Commission (SEC) has granted relief to U.S. digital asset lending firm BlockFi, waiving its $30 million fine until investors are compensated.

BlockFi Receives Temporary Relief of $30M Fine

U.S. financial regulator the SEC directed bankrupt BlockFi to reimburse its investors before settling $30 million in charges, according to court documents filed on June 22. The amount is the remainder of a total of $50 million fined last year by the cryptocurrency lending firm.

In February 2022, the SEC penalized BlockFi for failing to register offers and sales of BlockFi Interest Accounts (BIA), a retail crypto lending product offered to U.S. investors, by the SEC. Although the company never admitted or denied the SEC's findings, it agreed to pay a $50 million fine and stop selling BIA in the United States.

Notably, BlockFi was fined an additional $50 million by regulators in 32 states, who also accused the company of violating securities laws that same month.

Nonetheless, the lending platform filed for bankruptcy in November following the collapse of the notorious FTX exchange. BlockFi reported a $1 billion hole in its balance sheet, with over 100,000 creditors totaling $10 billion in liabilities.

Yesterday, the SEC asked BlockFi to defer payment of an outstanding $30 million penalty. The move is to help "maximize the amount that may be distributed to investors and avoid delays in such distributions."

So far, however, state regulators have taken no action. It remains to be seen whether they will temporarily waive the fine or continue to press charges.

**Could the SEC's decision speed up BlockFi's $300 million repayment? **

BlockFi began efforts to recover client funds and pay fines earlier this year. On January 30, 2023, the digital asset lender received court approval to sell its cryptocurrency mining assets to provide liquidity to paying customers and regulators.

Later in May, a judge in New Jersey ruled that the $300 million in BlockFi’s escrow wallets should be returned to users, not the company’s property. It appears customers are more likely to receive the funds after the SEC provided relief.

Still, the recovery of investors and clients of bankrupt BlockFi will largely depend on the firm’s claims against the collapsed FTX Exchange and its trading firm, Alameda, according to court documents. The crypto lending platform froze about $355 million worth of cryptocurrencies on FTX and lent an additional $671 million to Alameda.