DFR Serves as a Lead State in $100 Million Settlement Between State Regulators, US Securities & Exchange Commission and Cryptocurrency Firm

14 February 2022
Vermont to Receive $940,000 Under the Settlement

Montpelier, VT – Commissioner Michael Pieciak today announced that a digital-asset financial services company, BlockFi Lending LLC (BlockFi), agreed to settlement terms with the Department of Financial Regulation (DFR) relating to BlockFi’s offers and sales of unregistered cryptocurrency interest-bearing account products to Vermonters.

As of December 31, 2021, BlockFi had improperly induced over 470 Vermonters to hold over $6.5 million in cryptocurrency assets with the company in its interest-bearing account products. BlockFi agreed to pay $50 million to state regulators (plus the District of Columbia, Puerto Rico, and the US Virgin Islands) and $50 million to the SEC. The State of Vermont will receive just over $940,000.

“This settlement reflects DFR’s core mission to protect investors and ensure a level playing field for industry participants,” said Commissioner Pieciak. “I am proud of the key role DFR played in bringing this matter to a resolution and I want to thank assistant general counsels Ethan McLaughlin and Erin Moore for their leadership and tireless efforts to protect investors in Vermont and nationwide.” 

In 2019, DFR’s Banking Division received an application for a license from BlockFi. While reviewing the application, DFR attorneys raised questions as to whether BlockFi was selling unregistered securities. DFR brought the matter to a multistate working group and served as a lead state in pursuing a global resolution.   

Beginning in January 2021, the multistate working group contacted BlockFi and provided notice that the company may have offered and sold securities not in compliance with state securities laws. During the summer of 2021, six states, including Vermont, filed actions against BlockFi. State regulators alleged BlockFi promoted its unregistered cryptocurrency interest-bearing account products with promises of high returns for investors. As a result of being unregistered, investors were deprived of critical information and disclosures necessary to understand the potential risks of these interest-bearing account products.

This settlement comes amidst growing interest in cryptocurrencies among Vermonters. In the early months of the pandemic, the number of cryptocurrency transactions initiated in Vermont skyrocketed over 400% percent (224,283 transactions in 2020, compared to 44,290 in 2019) with over 7,000 Vermonters partaking. The total value of those Vermont-based transactions topped out at $83.7 million in 2020, compared to $15.1 million in 2019.

Some cryptocurrency products, however, do not have any of the regulatory safeguards provided by registered firms and products. For example, issuers of registered securities must truthfully disclose material facts and explain the risks associated with their investment offerings, while federal insurance protects depositors and investors in banks and credit unions against certain kinds of losses. In contrast, companies 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.

Effective immediately, BlockFi will stop offering its interest-bearing account products to the public as it works to get into securities compliance. BlockFi may continue to deploy digital assets for existing customers and may continue to pay interest. Further, current investors may keep their existing investments with BlockFi and will continue to earn interest under their initial agreements 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.

DFR is considering additional enforcement actions against other cryptocurrency firms that are failing to comply with Vermont law. Firms offering products that need to register and deal with past unregistered activity should contact DFR immediately. Additionally, Vermonters who are concerned about whether their cryptocurrency investment or firm are properly registered should contact the DFR Securities Division at 802-828-3420 or via email dfr.securitiesinfo@vermont.gov.

DFR would like to thank its fellow state regulators and the SEC for their coordinated efforts, collaboration, and assistance. 

Connect with the Vermont Department of Financial Regulation on Twitter, Facebook, and on our website.

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BlockFi Consent Order

Investor Bulletin: Crypto Asset Interest-bearing Accounts

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Department of Financial Regulation
Consumer Services 
89 Main Street, Montpelier, VT 05620 - 3101

802-828-3301
833-DFR-HOTLINE (toll free)
833-337-4685 (toll free)

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