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On February 14, 2022, the Securities and Exchange Commission announced a settlement with a crypto lending company in a “first-of-its-kind enforcement action” for failing to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).  In the novel settlement, BlockFi Lending LLC (“BlockFi”) agreed to pay $100 million in penalties — $50 million of which will be paid to the SEC, and the remaining $50 million allocated to 32 different state regulators for similar charges.  As part of the settlement, BlockFi has undertaken to comply with the Investment Company Act either by registering as an investment company or by proving to the SEC Staff that it is not required to do so.  BlockFi has 60 days from entry of the order to comply and may obtain an extension of another 30 days.  Should BlockFi successfully come into compliance, it could be the first SEC-registered entity to offer a digital asset lending product.[1]  Despite BlockFi’s groundbreaking settlement, BlockFi still faces a putative class action by investors.
Continue Reading Despite BlockFi’s $100 Million Settlement with the SEC for Failing to Register as an Investment Company, BlockFi is Under Fire From Investors

On November 1, 2021, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) issued a Report on Stablecoins (the Report).[1]   Stablecoins “are digital assets that are designed to maintain a stable value relative to a national currency or other reference assets.”[2]  The Report recommends that Congress act promptly to enact legislation addressing stablecoins[3] and signals the Biden Administration’s focus on this issue and looming enforcement from  governing agencies such as the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).

The Report provides an overview of stablecoins and decentralized finance (DeFi) platforms more generally; risks and regulatory gaps; and the group’s recommendation.  In drafting the Report, the Agencies held discussions with key industry stakeholders, including Coinbase, Kraken, and Stripe.  While the Report signals that one day we may see clarity on relevant guidelines related to stablecoins, the Report itself offers little clarity or specific guidance to stakeholders today.Continue Reading Biden Administration Signals Focus on Cryptocurrency as President’s Working Group Issues Report on Stablecoin