It is unfortunate that the United States Securities and Exchange Commission has chosen to send a message to the crypto industry by extracting a huge $100 million settlement from the lending platform BlockFi in an administrative proceeding publicly announced on Feb. 14. It was quite a Valentine’s Day kiss — $50 million for the SEC and $50 million for some 32 states that piled on because they saw an easy target.
Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain & the Law.”
Don’t misunderstand: I agree with the SEC that as a part of its lending activity, BlockFi likely offered products that could be characterized as “securities” under their definition in the Securities Act of 1933 in Section 2(11). Regular Cointelegraph readers may recall me talking about a similar lending program planned by Coinbase that would likely be a “security” given that the loaned assets were all pooled together for lending purposes. The legal analysis by the SEC takes a somewhat different approach, with the lending program presented as both an “investment contract” and “note” under Section 2(11). Thus, the fact that the SEC commenced an action for that federal securities law infraction does not surprise me. What is somewhat troubling, though, is both the size of the penalty and the assertion that BlockFi operated as an unregistered investment company under the Investment Company Act of 1940.
Indeed, I am not the only one disturbed by this. SEC Commissioner Hester Peirce publicly dissented by way of issuing a “Statement on Settlement with BlockFi Lending LLC” the same day the SEC proceeding commenced. In the statement, she asks:
“Is the approach we are taking with crypto lending the best way to protect crypto lending customers? I do not think…