SEC Delays $30M Fine Against BlockFi Pending Creditor Repayment

The United States Securities and Exchange Commission (SEC) has decided to postpone the payment of a $30 million fine imposed on crypto lender BlockFi until the company’s creditors are fully compensated. The fine represents the remaining amount of a $50 million settlement reached between BlockFi and the SEC in February 2022.

According to recent court filings on June 22, the SEC has agreed to waive the outstanding amount owed by BlockFi in order to prioritize the distribution of funds to investors and prevent any delays. The document states that the SEC “has agreed to forego participating in any distributions under the Plan or requiring any cash reserve in connection with such distributions.”

The SEC took action against BlockFi in February 2022, alleging that the company had failed to register its high-yield interest accounts as securities. As part of the settlement, BlockFi agreed to pay $50 million to the SEC and an additional $50 million to 32 U.S. states that had filed similar complaints.

Court documents reveal that the SEC was listed as one of BlockFi’s top creditors, along with West Realm Shires Services Inc., which operates as FTX US. BlockFi filed for Chapter 11 bankruptcy protection in late November after concerns arose about its financial stability following the FTX crisis. At the time of the bankruptcy filing, BlockFi had $256.9 million in liquidity.

In a separate development, a federal judge granted BlockFi permission on May 11 to refund $297 million to customers with deposits held in its Wallet program. However, this refund did not apply to users of BlockFi Interest Accounts (BIA), which were used in the lending business and are considered assets of the bankruptcy estates. The BIA accounts of BlockFi currently hold over $375 million.

Furthermore, BlockFi has committed to reimbursing more than $100,000 to customers in California who continued repaying loans even after the company halted trading on November 10 of the previous year. An investigation conducted by California’s Department of Financial Protection and Innovation revealed that approximately 111 borrowers in the state had made loan repayments totaling around $103,471 following the bankruptcy filing.

The SEC’s decision to defer the $30 million fine payment reflects the aim to prioritize the satisfaction of BlockFi’s creditors before settling its outstanding obligations with the regulatory authority.

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