Originally published on: November 08, 2024
The California Department of Financial Protection and Innovation (DFPI) has taken decisive action against the collapsed cryptocurrency lender, BlockFi, by permanently revoking its license two years after its bankruptcy.
On November 7th, the DFPI announced the license revocation, following an examination that began with the suspension of BlockFi’s license back in November 2022. BlockFi entered into a settlement with the DFPI, agreeing to the license revocation and committing to cease violations and unsafe practices.
The DFPI’s decision to completely revoke BlockFi’s license came after finding that the company had violated the California Financing Law (CFL). BlockFi disregarded the CFL by neglecting to assess borrowers’ ability to repay loans, charging interest before disbursing loan proceeds, failing to provide credit counseling to consumers, and neglecting to report payment performance to credit bureaus. Moreover, the company inaccurately disclosed annual percentage rates in loan documents.
Commissioner Clothilde Hewlett emphasized the seriousness of the violations, leading to a $175,000 fine levied by the DFPI as part of the settlement agreement. However, the fine was waived to prioritize consumer repayments due to BlockFi’s bankruptcy and cessation of operations.
This license revocation in California follows BlockFi’s shutdown of its web platform in May, leaving clients unable to access their accounts. The company’s bankruptcy woes stem from its ties to FTX, whose collapse in November 2022 triggered BlockFi’s downfall.
In its Chapter 11 filing, BlockFi acknowledged significant exposure to FTX and its affiliates, including a $400 million credit line extended to FTX US in July 2022. FTX US is also one of BlockFi’s top unsecured creditors, with a $275 million loan outstanding.
Despite reaching agreements for payments from FTX and Alameda Research, totaling $875 million, BlockFi’s debts are estimated to exceed $10 billion owed to more than 100,000 creditors.
As the cryptocurrency industry navigates challenges and regulatory scrutiny, the BlockFi saga underscores the importance of compliance and financial stability in this evolving landscape.
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