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Interesting to read BlockFi's own statement about the event: https://blockfi.com/regulatory-developments/ https://blockfi.com/regulatory-developments/ No menti

Interesting to read BlockFi's own statement about the event: https://blockfi.com/regulatory-developments/ https://blockfi.com/regulatory-developments/ No mention of the fine at all, and instead framed as "first SEC registered crypto interest-bearing security" (from BlockFi's page) rather than "[BlockFi] failing to register the offers and sales of its retail crypto lending product" and "the SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940" (both quotes from the SEC statement). BlockFi also doesn't mention the "false and misleading statement for more than two years on its website" part that the SEC highlights, and instead says "Both the SEC and state-level agreements contain no admission or denial of wrongdoing or liability." Going to be interesting to see how the space develops moving forward. Hopefully companies that continue to mislead people will eventually disappear, or at least not be this popular among the masses.

pm90 5y ago
They won’t. The desire for making a quick buck is too strong. The avalanche of marketing around crypto is going to lead many gullible people to “invest” in crypto and lose their money. Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop.
- capableweb 5y ago
  > Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop. It seems, based on this action that the SEC just went through with, that things like BlockFi are not "clearly MLM / fraud" as you say, as otherwise they would indeed try to get them shutdown, not just slap a tiny fine on them.
  - cuteboy19 5y ago
    The SEC doesn't do MLMs. Herbalife and Lularoe operate in broad daylight. The US has always been very kind to such scams
    - dragonwriter 5y ago
      > The SEC doesn't do MLMs. It does if they are selling securities (either as their main business or securities for their business). The FTC does regular MLMs. > Herbalife and Lularoe operate in broad daylight. Herbalife was restructured to settle a pyramid-scheme lawsuit by the FTC. [0] And subsequently also settled a lawsuit from the SEC. [1] LulaRoe has managed not to be sued by the FTC, but that seems mostly to be because that process is complaint driven and the complaints have instead either gone to state regulators or directly into private lawsuits; LulaRoe has a pile of direct- and class-action lawsuits from distributors, settled a State of Washington lawsuit for $4.75 million, has been sued by it's main supplier, etc. [0] https://www.consumer.ftc.gov/blog/2016/07/restructured-herbalife https://www.consumer.ftc.gov/blog/2016/07/restructured-herba... [1] https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbalife-pays-sec-20-million-to-settle-charges-it-misled-investors/?sh=3d0aa41c580b https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbal...
vinniejames 5y ago
- ivalm 5y ago
  Did they offer an unregulated security where there is a chance to lose principle to unsophisticated retail investor which is well known to be illegal? The answer to that is yes.
  - latchkey 5y ago
    Their site has always been very clear on the risks involved. "Digital currency is not legal tender, is not backed by the government, and crypto accounts held with BlockFi are not subject to FDIC or SIPC protections. Digital currency values are not static and fluctuate due to market changes." What I think has never been clear is how they were able to manage the risk of their lending practices, in order to provide the big APYs.
    - skybrian 5y ago
      I'm not sure how disclosure makes it not an unregistered security?
    - matkoniecz 5y ago
      Page 9 of the PDF of the actual order (linked on the page under "SEC Order") explains how BlockFi made misleading claims: > From March 2019 through August 2021, BlockFi misrepresented on its website that its institutional loans were “typically” over-collateralized, when in fact, most institutional loans were not. (copy of https://news.ycombinator.com/item?id=30335113 https://news.ycombinator.com/item?id=30335113 )
- capableweb 5y ago
  Here is the full quote from the SEC statement (in case you missed it when you read the statement): > The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity. > Without admitting or denying the SEC’s findings, BlockFi agreed to a cease-and-desist order prohibiting it from violating the registration and antifraud provisions of the Securities Act and the registration provisions of the Investment Company Act. BlockFi also agreed to cease offering or selling BIAs in the United States.
f0e4c2f7 5y ago
Crypto to me reads increasingly like classical finance as time goes by. The parallel here is that banks lobby against new regulation, then once the regulation exists as a moat, they lobby to keep the regulation. I'm sure the 100M fine didn't feel great but unless it bankrupts the company I doubt that BlockFi would want to go backwards now. For the low price of 100M they now have a map of how to legally do business in the space, in a way that is now much scarier to any would be new entrants. At its most optimistic I think crypto is trying to avoid some of these regulatory rube goldberg value extraction machines. Maybe it will in some spots, but you can see too where it may also just reinvent them.
- capableweb 5y ago
  > Crypto to me reads increasingly like classical finance as time goes by. The parallel here is that banks lobby against new regulation, then once the regulation exists as a moat, they lobby to keep the regulation. If you focus on the centralized institituions like cryptocurrency<>centralized currencies exchanges, or centralized lending platforms, then yeah, they sure get closer and closer to classical finance (except being based around decentralized platforms). But if you look at actual cryptocurrencies, without focusing on the exchanges or any other centralized parties, they actually get further and further away from classical finance. But it requires you to read GitHub/IRC/Matrix/Forum discussions between developers, rather than following reported news.
- sirspacey 5y ago
  This: “They now have a map” Regulators won’t generally tell you how to comply with a rule, often because they don’t know. So you force them to make a ruling and then have a proprietary roadmap. What was learned in those meetings by both parties is a huge moat. In the end, the SEC just got a hefty pay day for doing their job.
  - pranavjoneja 5y ago
    How is this a moat for BlockFi? Why can't a competitor do exactly the same thing as BlockFi without paying the $100M fine? Asking this question earnestly because I actually want to know more.
vishnugupta 5y ago
I have a vested interest in this domain now that I'm starting up in this space so am closely following these and related products. A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment. In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan. In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point. I'm really glad SEC has been proactive. I hope regulators in other countries do so. Because 99% of the money flowing into these are totally guidable and clueless people; they need to be protected for their own sake. [1] https://www.pillow.fund https://www.pillow.fund [1] https://www.flint.money https://www.flint.money [2] https://au.finance.yahoo.com/news/anchor-protocol-reserves-slide-money-132554340.html https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...
- ilamont 5y ago
  I have a vested interest in this domain now that I'm starting up in this space ... 99% of the money flowing into these are totally guidable and clueless people Is your startup going after the consumers? If most prospective customers are clueless, and many of the remaining customers are sharks or early investors looking for suckers, that doesn't bode well for new companies in this space, even the ones that are trying to do things right.
  - vishnugupta 5y ago
    You are right in general. As you could guess from the tone of my comment, I want the ecosystem to be cleaned up and my startup is going to play a role in that. It is essential for crypto/DeFi to go mainstream. There is a big shakeup coming which will weed out all these get-rich-quick products. Me and my co-founders are committing ourselves into this for the long haul (think ~10 years) so are taking it slow. We hope our deliberate, slow and steady approach will help us tide over the current short term bubble and the imminent burst.

pm90 5y ago

They won’t. The desire for making a quick buck is too strong. The avalanche of marketing around crypto is going to lead many gullible people to “invest” in crypto and lose their money. Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop.

capableweb 5y ago
> Unless regulators shut them down or expose them quite clearly as mlm/ frauds I suspect this isn’t going to stop. It seems, based on this action that the SEC just went through with, that things like BlockFi are not "clearly MLM / fraud" as you say, as otherwise they would indeed try to get them shutdown, not just slap a tiny fine on them.
- cuteboy19 5y ago
  The SEC doesn't do MLMs. Herbalife and Lularoe operate in broad daylight. The US has always been very kind to such scams
  - dragonwriter 5y ago
    > The SEC doesn't do MLMs. It does if they are selling securities (either as their main business or securities for their business). The FTC does regular MLMs. > Herbalife and Lularoe operate in broad daylight. Herbalife was restructured to settle a pyramid-scheme lawsuit by the FTC. [0] And subsequently also settled a lawsuit from the SEC. [1] LulaRoe has managed not to be sued by the FTC, but that seems mostly to be because that process is complaint driven and the complaints have instead either gone to state regulators or directly into private lawsuits; LulaRoe has a pile of direct- and class-action lawsuits from distributors, settled a State of Washington lawsuit for $4.75 million, has been sued by it's main supplier, etc. [0] https://www.consumer.ftc.gov/blog/2016/07/restructured-herbalife https://www.consumer.ftc.gov/blog/2016/07/restructured-herba... [1] https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbalife-pays-sec-20-million-to-settle-charges-it-misled-investors/?sh=3d0aa41c580b https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbal...

vinniejames 5y ago

ivalm 5y ago
Did they offer an unregulated security where there is a chance to lose principle to unsophisticated retail investor which is well known to be illegal? The answer to that is yes.
- latchkey 5y ago
  Their site has always been very clear on the risks involved. "Digital currency is not legal tender, is not backed by the government, and crypto accounts held with BlockFi are not subject to FDIC or SIPC protections. Digital currency values are not static and fluctuate due to market changes." What I think has never been clear is how they were able to manage the risk of their lending practices, in order to provide the big APYs.
  - skybrian 5y ago
    I'm not sure how disclosure makes it not an unregistered security?
  - matkoniecz 5y ago
    Page 9 of the PDF of the actual order (linked on the page under "SEC Order") explains how BlockFi made misleading claims: > From March 2019 through August 2021, BlockFi misrepresented on its website that its institutional loans were “typically” over-collateralized, when in fact, most institutional loans were not. (copy of https://news.ycombinator.com/item?id=30335113 https://news.ycombinator.com/item?id=30335113 )
capableweb 5y ago
Here is the full quote from the SEC statement (in case you missed it when you read the statement): > The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity. > Without admitting or denying the SEC’s findings, BlockFi agreed to a cease-and-desist order prohibiting it from violating the registration and antifraud provisions of the Securities Act and the registration provisions of the Investment Company Act. BlockFi also agreed to cease offering or selling BIAs in the United States.

f0e4c2f7 5y ago

Crypto to me reads increasingly like classical finance as time goes by. The parallel here is that banks lobby against new regulation, then once the regulation exists as a moat, they lobby to keep the regulation. I'm sure the 100M fine didn't feel great but unless it bankrupts the company I doubt that BlockFi would want to go backwards now. For the low price of 100M they now have a map of how to legally do business in the space, in a way that is now much scarier to any would be new entrants. At its most optimistic I think crypto is trying to avoid some of these regulatory rube goldberg value extraction machines. Maybe it will in some spots, but you can see too where it may also just reinvent them.

capableweb 5y ago
> Crypto to me reads increasingly like classical finance as time goes by. The parallel here is that banks lobby against new regulation, then once the regulation exists as a moat, they lobby to keep the regulation. If you focus on the centralized institituions like cryptocurrency<>centralized currencies exchanges, or centralized lending platforms, then yeah, they sure get closer and closer to classical finance (except being based around decentralized platforms). But if you look at actual cryptocurrencies, without focusing on the exchanges or any other centralized parties, they actually get further and further away from classical finance. But it requires you to read GitHub/IRC/Matrix/Forum discussions between developers, rather than following reported news.
sirspacey 5y ago
This: “They now have a map” Regulators won’t generally tell you how to comply with a rule, often because they don’t know. So you force them to make a ruling and then have a proprietary roadmap. What was learned in those meetings by both parties is a huge moat. In the end, the SEC just got a hefty pay day for doing their job.
- pranavjoneja 5y ago
  How is this a moat for BlockFi? Why can't a competitor do exactly the same thing as BlockFi without paying the $100M fine? Asking this question earnestly because I actually want to know more.

vishnugupta 5y ago

I have a vested interest in this domain now that I'm starting up in this space so am closely following these and related products. A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment. In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan. In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point. I'm really glad SEC has been proactive. I hope regulators in other countries do so. Because 99% of the money flowing into these are totally guidable and clueless people; they need to be protected for their own sake. [1] https://www.pillow.fund https://www.pillow.fund [1] https://www.flint.money https://www.flint.money [2] https://au.finance.yahoo.com/news/anchor-protocol-reserves-slide-money-132554340.html https://au.finance.yahoo.com/news/anchor-protocol-reserves-s...

ilamont 5y ago
I have a vested interest in this domain now that I'm starting up in this space ... 99% of the money flowing into these are totally guidable and clueless people Is your startup going after the consumers? If most prospective customers are clueless, and many of the remaining customers are sharks or early investors looking for suckers, that doesn't bode well for new companies in this space, even the ones that are trying to do things right.
- vishnugupta 5y ago
  You are right in general. As you could guess from the tone of my comment, I want the ecosystem to be cleaned up and my startup is going to play a role in that. It is essential for crypto/DeFi to go mainstream. There is a big shakeup coming which will weed out all these get-rich-quick products. Me and my co-founders are committing ourselves into this for the long haul (think ~10 years) so are taking it slow. We hope our deliberate, slow and steady approach will help us tide over the current short term bubble and the imminent burst.