Arkansas Securities Department enters a $50 million settlement with financial services company, affects 1,699 Arkansas investors

2/16/2022

 

For Immediate Release

 

 

 

Little Rock, Ark.—— The Arkansas Securities Department (ASD) announced that BlockFi Lending LLC, a digital-asset financial services company, agreed to a $50 million settlement that affects more than 1,699 Arkansas residents. BlockFi agreed to work with the ASD to settle offers and sales of unregistered securities in the form of interest-bearing digital asset deposit accounts called BlockFi Interest Accounts (BIA) to Arkansas residents. As of December 31, BlockFi had 407,030 BIA investors in the US, with more than 1,699 in Arkansas.

BlockFi agreed to pay $50 million to the 53 North American Securities Administrators Association (NASAA) member agencies and $50 million to the Securities and Exchange Commission (SEC). After executing the appropriate consent orders, the 53 NASAA-member agencies will share equally in their half of the settlement, with each receiving $943,396.22. The ASD is one of 32 NASAA-member agencies that have already agreed to work with BlockFi to settle and more jurisdictions are expected to follow.

BlockFi’s agreement to enter a settlement with the ASD comes amidst rising concerns over the proliferation of “decentralized” and digital asset-based financial products and services targeting retail investors. Many of these products and services are like traditional financial services offered by banks and brokerages but without any of the regulatory safeguards provided by registered firms and products. For example, registered firms must truthfully disclose all known material facts and explain the risks associated with their investments, while the Federal Deposit Insurance Corporation, National Credit Union Administration, and the Securities Investor Protection Corporation insure depositors and investors against certain kinds of losses. Financial service firms operating in innovative fintech markets may not be complying with important laws that protect retail clients, and investors may not have access to the information necessary to conduct due diligence and make fully informed decisions.

“State securities regulators recognize the value new technology brings to financial markets. Complying with existing laws and regulations promotes competitive capital markets and continued investor protection,” said Arkansas Securities Commissioner Eric P. Munson. “This collaborative action sets an example for other firms providing digital asset financial products and services of how to work toward complying with securities laws in Arkansas.”

Effective immediately, BlockFi will stop offering its BIAs to the public. BlockFi’s parent company, BlockFi Inc., represented it intends to file with state and federal regulators to offer and sell a new product called BlockFi Yield. As part of the settlement terms, BlockFi will cease allowing new investments in the BIAs until its securities are properly registered. BlockFi may continue to deploy digital assets for existing BIA investors and may continue to pay interest. Between Feb. 14 and the date BlockFi’s securities are registered and qualified or permitted for sale with the states and SEC, current investors may keep their existing investments with BlockFi and will continue to earn interest under their initial agreement with the company. This measure is designed to protect the interests of existing investors while allowing BlockFi time to bring itself into compliance with state and federal law.

The ASD is continuing to consider enforcement actions against firms that fail to comply with state law. Firms that need to register and deal with past unregistered activity should contact their state and federal regulators. The ASD would like to thank its fellow NASAA member agencies, especially the multistate working group, for its coordinated efforts and the SEC for their collaboration and assistance.

Investors are encouraged to contact the Arkansas Securities Department with questions about any investment opportunity or the persons offering it for sale before investing in the product. Contact 1-800-981-4429 to report suspected fraud, inappropriate securities business practices or to obtain consumer information. 

 

A copy of this press release is available on the Arkansas Securities Department’s website at www.securities.arkansas.gov.

The ASD cautions citizen investors of all ages and experiences to thoroughly scrutinize and research any investment opportunity or offer.  Contact the ASD at 1-800-981-4429 to check out any person or financial professional offering an investment opportunity or investment advice for a fee and the products they offer for proper registration.  Contact the ASD to report suspected fraud, inappropriate securities business practices, or to obtain consumer information. The ASD provides free investor education and fraud prevention materials in print and through educational presentations upon request.

Contact

   

Jeanni Brosius

Public Information Coordinator

 

501-683-3623 - desk

501-291-8023 - cell

 

jeanni.brosius@arkansas.gov

     

About Arkansas Securities Department

Charged with implementing and overseeing the Arkansas Securities Act, Arkansas Fair Mortgage Lending Act, the Arkansas Money Services Act, Arkansas Savings and Loan Act, and the Arkansas Credit Union Act, the Department regulates the sale of securities, securities brokerage firms and their agents, state-registered investment advisers and their representatives, mortgage loan companies and their loan officers, money services companies, as well as state-chartered credit unions and savings & loans. Our activities include registration, compliance, investigation of customer complaints, and consumer education.

About Arkansas Department of Commerce

The Arkansas Department of Commerce is the umbrella department for workforce and economic development drivers. Its divisions and regulatory boards include Division of Aeronautics, Waterways Commission, Wine Producers Council, Division of Workforce Services, Office of Skills Development, State Bank Department, Insurance Department, Securities Department, Economic Development Commission and Development Finance Authority. It was established July 2019 as part of Governor Asa Hutchinson’s wide-sweeping efficiency and transformation efforts to reduce 42 cabinet agencies to 15 while maintaining services for all Arkansans.

 

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Telephone: (501) 324-9260
Facsimile: (501) 324-9268
Hotline: (800) 981-4429
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