SEC Waives $30 Million Fine for Bankrupt BlockFi Platform to Expedite Investor Reimbursements

SEC Waives $30 Million Fine for Bankrupt BlockFi Platform to Expedite Investor Reimbursements

In a recent development, the U.S. Securities and Exchange Commission (SEC) has decided to waive a $30 million fine owed by bankrupt platform BlockFi, aiming to accelerate the return of funds to investors. This amount represents the remaining balance of a $50 million penalty imposed on BlockFi for allegedly failing to register its loan product with the regulatory authority.

Previously, the SEC was listed as one of the initial creditors likely to receive early payments. However, to optimize and expedite investor reimbursements, the SEC has agreed to forgo the payment owed by BlockFi as part of the fee settlement. This decision aligns with BlockFi’s ongoing bankruptcy proceedings, which were initiated to ensure the repayment of investors.

According to court documents, BlockFi, a crypto lending platform, had entered into a settlement agreement with the SEC in February 2022. However, following the collapse of FTX, BlockFi filed for bankruptcy in November 2022. The outstanding $30 million fine stemmed from allegations that BlockFi failed to register its cryptocurrency lending products with the appropriate regulatory authorities overseeing the offering and sale of crypto assets.

Legal expert Sasha Hodder, founder of Hodder Law specializing in crypto law, has suggested that the SEC could be among the first creditors to receive payments from BlockFi.

While the SEC could have included its claims as “general unsecured claims” in the ongoing Chapter 11 bankruptcy proceedings, the regulator opted to waive the payment. This decision was made to maximize the amount that can be distributed to investors and to avoid any delays in the distribution process, as stated in the agreement reached on June 22.

BlockFi, which experienced withdrawal suspensions due to the collapse of the FTX exchange, announced on June 12 that it anticipated completing the necessary withdrawal testing to initiate the return of funds to eligible customers during the summer. The company plans to carry out the withdrawal process in installments and will notify eligible individuals through confirmation emails. Additionally, BlockFi advises users to set up third-party wallets for withdrawals and plans to implement an interface upgrade before allowing asset withdrawals.