SEC waives BlockFi’s $30M fine until creditors are paid.

The United States Securities and Exchange Commission has agreed to postpone the payment of a $30-million fine from bankrupt crypto lender BlockFi until creditors are paid back. The amount represents the balance of a $50-million settlement with the regulator from February 2022.

According to court documents filed on June 22, the SEC has agreed to temporarily waive the payment owed by BlockFi in order to prioritize the distribution of funds to investors. The SEC will not participate in any distributions under the Plan or require any cash reserve in connection with such distributions until payment is made in full to all other allowed claims.

In February 2022, the SEC took action against BlockFi for failing to register its high-yield interest accounts as securities. The company agreed to pay $50 million to the regulator as part of the settlement, as well as another $50 million to 32 U.S. states filing similar complaints.

According to court documents, the SEC was at the top of BlockFi’s creditor list, along with West Realm Shires Services Inc. (doing business as FTX US). BlockFi filed for Chapter 11 bankruptcy protection in late November following the FTX crisis, which raised concerns about its financial health. At the time of the bankruptcy filing, BlockFi had $256.9 million in liquidity.

On May 11, a federal judge granted BlockFi permission to return $297 million to customers with deposits held in its Wallet program. The refund did not apply to users of BlockFi Interest Accounts (BIA) that were used in its lending business and are property of the bankruptcy estates. BlockFi’s BIA accounts hold over $375 million.

BlockFi will also refund more than $100,000 to California customers who continued to repay loans even after the company halted trading on Nov. 10 last year. An investigation by California’s Department of Financial Protection and Innovation discovered that at least 111 borrowers in the state made roughly $103,471 in loan repayments after the bankruptcy filing.

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