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Financial Services Law Insights and Observations

SEC, states reach $100 million settlement over crypto lending product

Securities Digital Assets Enforcement Cryptocurrency Settlement State Issues State Regulators Investment Company Act Securities Act Fintech SEC


On February 14, the SEC and state regulators reached a $100 million settlement with a New Jersey-based financial services company in parallel actions to resolve allegations that the company failed to register the offers and sales of its retail credit lending product—marking the SEC’s “first-of-its-kind action” taken with respect to crypto lending platforms. According to the SEC, the company offered a product whereby retail investors lent crypto assets to the company “in exchange for the company’s promise to provide a variable monthly interest payment.” Among other things, the SEC found that because the company’s product are securities under applicable law, the company was required to register its offers and sales of the product or qualify for an exemption—both of which the company failed to do. The company also allegedly violated the Securities Act by making misleading statements on its website concerning its collateral practices and the level of risk in its loan portfolio and lending activity. Additionally, the company allegedly violated the Investment Company Act by engaging in interstate commerce while failing to register as an investment company with the SEC. While the company neither admitted nor denied the findings, it agreed to pay $50 million to the SEC and another $50 million to 32 states to settle similar charges. The company also agreed to cease engaging in unregistered offers and sales of its product, and will stop offering or selling its product in the U.S. Additionally, the company’s parent company stated its intention to register the offer and sale of a new lending product under the Securities Act.