- Iowa ordered BlockFi to pay an administrative fee of $900,000 following an investigation into its loan products.
- The state discovered that only a small percentage of BlockFi's loans were overcollateralized, contradicting claims made in advertisements.
- Other major crypto companies are seeking guidance on how to proceed with interest-bearing products, not wanting to go down the same path as BlockFi.
Crypto lender BlockFi is in hot water with state regulators in Iowa after making false claims regarding the collateralization status of loans it offers.
The Iowa Insurance Division’s Securities and Regulated Industries Bureau presided over this matter under Iowa Code 502.604, the Uniform Securities Act, which grants the body the power to “issue an order directing the person to cease and desist” from engaging in an “act, practice or course of business” in violation of Chapter 502 of the Uniform Securities Act.
“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 capital formation,” said Iowa Insurance Commission Doug Ommen, who issued a consent order to the firm.
In addition to a settlement of $50 million divided equally among 53 jurisdictions, including 50 U.S. states and the District of Columbia, Peurto Rico, and the U.S. Virgin Islands, BlockFi has been ordered to pay an administrative fine of $943,000 to the State of Iowa in five installments of approximately $188,000.
BlockFi faces the music
This order is the culmination of a joint 53-state investigation by the North American Securities Administrators Association into BlockFi’s lending activities. One of the association’s members, the state of New Jersey, filed a cease and desist order on July 19, 2021, alleging that BlockFi, its holding company BlockFi Inc., and its affiliate BlockFi Trading LLC were offering and selling unregistered securities.
The states of Alabama and Vermont later filed orders to show cause alleging BlockFi, its affiliate, and holding company were pushing unregistered securities on residents.
BlockFi claimed on its website that its loans were “typically” overcollateralized (collateral posted exceeds the amount borrowed) without providing evidence. Upon investigation, Iowa regulators discovered that only 17% of loans offered in 2021, 16% in 2020, and 24% in 2019 were overcollateralized. The state watchdog alleges that investors were thus misled into assuming greater protection than was available.
“Iowans should make sure they are only investing in what they should be willing to lose,” Ommen concluded.
In settling, the company neither admits nor denies conclusions drawn in the consent order. BlockFi recently paid $100 million to the Securities and Exchange Commission for offering unregistered securities.