SEC Temporarily Suspends $30M BlockFi Penalty Pending Investor Repayment – NewsTo
SEC Temporarily Suspends $30M BlockFi Penalty Pending Investor Repayment

SEC Temporarily Suspends $30M BlockFi Penalty Pending Investor Repayment

In an unanticipated plot twist, the U.S. Securities and Exchange Commission (SEC) has displayed a rarely-seen act of financial mercy. The SEC has agreed to wait to collect a hefty $30 million fine from crypto lender BlockFi, currently grappling with bankruptcy. This surprising move, captured in a court filing from Thursday, is designed to ensure that BlockFi’s investors are repaid before the regulator collects its due.

From $50M To $30M

The saga began with BlockFi facing an imposing $50 million penalty from the SEC, a settlement resulting from charges related to the crypto lender’s failure to register its crypto lending product. The SEC slapped this penalty on BlockFi in February 2022.

However, BlockFi’s subsequent filing for bankruptcy in November – after the devastating collapse of the crypto exchange FTX – threw a wrench into the proceedings. Now, what remains of the penalty is a $30 million IOU, payable to the SEC.

Prioritizing ‘General Unsecured Claims’ Over Regulatory Fines

The SEC is now arguing that its claims should be part of the “general unsecured claims” in the ongoing Chapter 11 bankruptcy proceedings. In an effort to prioritize investor returns and streamline distribution, the regulator has agreed to postpone receiving its fine. The significance of this decision becomes evident when considering that the SEC is usually at the front of the creditor queue.

Also Read: Ripple’s Stuart Alderoty Exposes SEC’s Bias: Are They Playing Favorites? – Coinpedia Fintech News

Investors to Recover $300M from Custodial Wallets

In another positive development for BlockFi’s investors, a New Jersey bankruptcy court judge decreed in May that BlockFi customers could recoup $300 million held in custodial wallets on the platform.

While BlockFi’s bankrupt estate has presented a reorganization plan to the court, the hearing for which is due in July, the company has stated that the $1 billion claims against the now-defunct crypto enterprise FTX and its sister trading firm Alameda will form the “largest driver” of fund recoveries for its customers and creditors.

A Surprising Turn for BlockFi’s Investors

The tale of BlockFi’s bankruptcy has taken an unexpected turn with the SEC’s decision. Rather than prioritizing its own claims, the regulator is championing the rights of investors, seeking to expedite their repayment. This saga may serve as a valuable lesson for the wild frontier of cryptocurrency trading, reminding participants that even in the most unregulated spaces, the order can emerge to protect those most vulnerable.

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