BlockFi Suffers Lawsuit From Users After the $100M Penalty From SEC

Key Insights:

• BlockFi users file a class-action lawsuit against the company.
• The DeFi lending protocol recently settled with SEC for a $100 million fine.
• Users state BlockFi should have disclosed unregistered BIA products earlier.

 

Earlier this month, a decentralized lending protocol BlockFi came, faced SEC’s scrutiny for being an unregistered entity.

The Securities and Exchange Commission proceeded to place the biggest fine in its history of $100 million.

Following SEC’s penalty, the users, too, have now retaliated against the protocol in their way.

Users Sue BlockFi

Led by plaintiff John Mangalo, the class action lawsuit has been proposed to represent BlockFi’s hundreds of thousands of users.

The protocol operating as a lending platform was selling BlockFi Interest Accounts (BIAs) to investors.

Users could then lend crypto-assets such as Bitcoin, Ethereum, and more into the exchange through these accounts.

However, these BIAs were unregistered securities, and its users decided to hold BlockFi accountable for not revealing the same. 

Adding to the same, John Mangano said,

“BlockFi failed to disclose to BIA Investors that its BIA product is not currently registered by federal or state securities regulatory authorities, even though the BIA is a ‘security’ and should be registered as such.”

Furthermore, according to John, BlockFi’s cryptocurrency-interest accounts carry increased risks than legacy financial products this way.

The SEC Slap

Earlier this month, the Securities and Exchange Commission charged BlockFi for violating the Investment Company Act of 1940. At the same time, the company was also not registered with the Securities Act of 1933.

But the DeFi protocol managed to settle the matter with SEC agreeing upon a $100 million penalty. Additionally, BlockFi also ceased all selling of BIAs in the United States.

However, BlockFi stated that they would continue operating, except for some American clients.

SEC has become an important and feared name in the crypto community owing to Gary Gensler. Not only is the ongoing Ripple vs. XRP lawsuit well known, but SEC’s efforts to achieve success are also well-known. 

Sadly these efforts went phut recently when the SEC failed to locate the founder of the $2.4 billion BitConnect scams. Said to have been relocated to a foreign country, the founder Satish Kumbhani remained large.