What it was
BlockFi Lending LLC, described in the SEC's own order as a New Jersey-based financial services company and a wholly owned subsidiary of BlockFi Inc., sold a product called the BlockFi Interest Account. A customer lent bitcoin or another crypto asset to BlockFi, and BlockFi promised a variable monthly interest payment. It generated that interest by lending the assets on to institutional borrowers, lending dollars to retail customers, and investing in equities and futures. The company also made dollar loans secured against a customer's bitcoin, which was the part of the business people found easiest to understand.
The scale was not small. The SEC order records approximately $14.7 billion in interest account assets as of 31 March 2021, and approximately $10.4 billion held for about 572,160 account holders as of 8 December 2021.
The registration case
On 14 February 2022 the SEC instituted a settled cease-and-desist proceeding against BlockFi Lending LLC. The order found that the interest accounts were securities, that BlockFi had offered and sold them without registering, that the company had operated for more than 18 months as an unregistered investment company, and that it had made a false and misleading statement on its website about the level of risk in its loan portfolio. BlockFi agreed to pay a $50 million penalty and a further $50 million to 32 states, and to stop offering the accounts in the United States.
BlockFi neither admitted nor denied the SEC's findings, which is the standard shape of a settled administrative order and is the reason this entry is not tagged as an adjudicated fraud. The SEC described it as the first case of its kind against a crypto lending platform.
The bankruptcy
BlockFi Inc. and eight affiliated debtors each filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the District of New Jersey on 28 November 2022, jointly administered as case number 22-19361 before Judge Michael B. Kaplan. The court confirmed a plan on 3 October 2023 and the plan went effective on 24 October 2023. The estate has been paying out through a court-appointed claims agent since, in cash rather than in coin. Listing here is not endorsement.