[HN Gopher] Blockfi agrees to pay $100M in penalties and pursue ...
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Blockfi agrees to pay $100M in penalties and pursue registration
Author : mrpatiwi
Score : 217 points
Date : 2022-02-14 16:43 UTC (6 hours ago)
(HTM) web link (www.sec.gov)
(TXT) w3m dump (www.sec.gov)
| jonathan-adly wrote:
| 1. This is a PR win for the SEC. It can now go to congress and
| say, see, we are working with Crypto companies! (while they
| really aren't, not in good faith anyway).
|
| 2. This is a win for Blockfi. Like other mentions, they gave
| their business a legal veneer for the sum for $100m. If you are
| of the opinion that all Cryptos and related companies are scams.
| Guess what? The SEC disagrees.
|
| 3. The same product (even better actually) is done via DeFi.
| That's where the real battle will be with major implications on
| the Ethereum ecosystem (or whatever Dapp blockchain you prefer).
| ProjectArcturis wrote:
| Definitely not a win for BlockFi. Definitely not an endorsement
| of crypto by the SEC. As part of the settlement, BlockFi had to
| agree to stop doing all that illegal stuff.
|
| "To settle the SEC's charges, BlockFi agreed to pay a $50
| million penalty, cease its unregistered offers and sales of the
| lending product, BlockFi Interest Accounts (BIAs), and attempt
| to bring its business within the provisions of the Investment
| Company Act within 60 days."
| managerclass wrote:
| > BlockFi had to agree to stop doing all that illegal stuff
|
| Have they though?
|
| From Blockfi:
|
| "As part of the resolution, existing U.S. BlockFi Interest
| Account (BIA) clients will maintain their accounts and
| receive interest as they always have, but cannot add new
| assets to their accounts as of today, February 14, 2022.
| Further, U.S. persons will not be able to open new BIAs.
| Following completion of the SEC registration process for
| BlockFi Yield, BIAs of U.S. clients will be exchanged for
| BlockFi Yield, unless a client instructs BlockFi otherwise.
| BIAs of BlockFi clients outside of the U.S. are not subject
| to today's resolution."
|
| Sounds like existing accounts can continue to function and
| accrue interest but no addition new users or assets can be
| deposited until they get SEC approval.
| babyshake wrote:
| > The same product (even better actually) is done via DeFi.
| That's where the real battle will be with major implications on
| the Ethereum ecosystem (or whatever Dapp blockchain you
| prefer).
|
| The US gov could require teams based in the US to require KYC
| in their apps for US citizens. And they can require US citizens
| to only use apps with KYC. But can they really do much beyond
| that?
| yrral wrote:
| Here is SEC commissioner Hester Peirce's dissenting opinion:
|
| https://www.sec.gov/news/statement/peirce-blockfi-20220214
|
| Essentially she says that while they did misrepresent the over
| collateralization, a 100m fine is too much since they did fulfill
| their end of the loans.
|
| Additionally, she says that the categorization this stuff as
| securities is not effective. US consumers want interest on their
| crypto-assets now, but with companies having to jump through
| complicated SEC hoops this type of product will not be available
| in the near future (or maybe never available); not because of
| "customer protection" issues but because of sec over-regulation
| issues.
| Comevius wrote:
| She always gives a partisan, anti-regulation opinion in these.
| She says that cryptocurrencies need new rules, but she never
| elaborates. She wants to keep the barrier of entry low while
| having meaningful protection for customers. Without regulation
| or oversight. How? Nobody knows. She doesn't either.
| kkielhofner wrote:
| In the rotating door that is regulators and the industries they
| regulate she's going to end up at a crypto company.
| Andrew_nenakhov wrote:
| Good. Now, please, unravel this Tether fraud.
| anonporridge wrote:
| Also the Ethereum unregistered security fraud.
| aaaaaaaaata wrote:
| What was/is(?) fraudulent about it, from the perspective of a
| single citizen who invested?
| anonporridge wrote:
| I never said fraudulent. Just an unregistered security,
| which is potentially illegal because the Ethereum
| foundation that sold and profited off the initial premined
| tokens to the public without proper disclosure required of
| a legal security sale.
|
| The result is that we now have no idea how much insider
| trading actually went on in that premine sale. For example,
| it could be the case that most Ethereum is secretly
| controlled by a tiny, tightly knit cabal of people who
| collude to pump up the price to a false valuation. If this
| were true, it would be incredibly problematic with their
| planned transition to proof of stake, because a tiny number
| of people would effectively have full control over the fate
| of the protocol and all the money outsiders hold in ETH.
| sincerely wrote:
| Ok, you didn't call it fraudulent, you called it fraud -
| is that not a distinction without a difference?
| anonporridge wrote:
| Ah, I did. Apologies.
|
| I should not have conflated my personal feelings with it
| with the facts of its suspicious and unverifiable initial
| distribution.
| AviationAtom wrote:
| I had a hunch some action of this sort was coming down the
| pipeline. The problem is that so many of these companies give the
| appearance of being fully law-abiding companies, but there isn't
| necessarily an easy to check that.
|
| I found it somewhat alarming that people proclaimed that 9% APY
| interest could be made, in such a way that it implied no risk, in
| much the same way cash in an FDIC-insured bank account is well-
| protected.
|
| I think much of this is moving so fast that it's going to take
| some time before the offerings really come close to offering the
| same level of safety one finds with an FDIC-insured bank account.
| exabrial wrote:
| What irritates me about this is it has to be sold as a "security"
| and a crypto bank account is completely out of the question.
|
| If you're putting your money in your bank, and they're loaning it
| out, is that now a security?
| maerF0x0 wrote:
| Good for the SEC and for BlockFi for keeping these kinds of
| things in the public purview. I hate how the FDA has so little
| teeth, comparatively.
|
| Eg: https://peckford42.wordpress.com/2021/10/05/pfizer-
| covering-...
| arcticbull wrote:
| It's just too bad that the SEC's fines are small enough that
| companies can absorb them. Feels more like they're getting
| their beaks wet. They need to impose significantly higher
| penalties and even dissolve the business if appropriate.
| duxup wrote:
| Provided we're not talking about an economy crashing act.
| Fines probably should be lower than "can't absorb them".
|
| The prospect of the SEC crashing every rando company with
| fines isn't great. Lotta people hurt who had nothing to do
| with it.
|
| I worked at a company that pulled some illegal stuff with
| backdating stock awards and so on. CEO actually went to jail.
| I'm glad I still had a job and the company rolled on, our
| customers were probably happy too.
| maerF0x0 wrote:
| I think by "absorb" the poster meant "Pay the fine and
| still make a profit from the fine inducing activity"
| arcticbull wrote:
| Thanks! Yes, that's exactly what I meant.
| [deleted]
| capableweb wrote:
| Interesting to read BlockFi's own statement about the event:
| https://blockfi.com/regulatory-developments/
|
| No mention of the fine at all, and instead framed as "first SEC
| registered crypto interest-bearing security" (from BlockFi's
| page) rather than "[BlockFi] failing to register the offers and
| sales of its retail crypto lending product" and "the SEC also
| charged BlockFi with violating the registration provisions of the
| Investment Company Act of 1940" (both quotes from the SEC
| statement).
|
| BlockFi also doesn't mention the "false and misleading statement
| for more than two years on its website" part that the SEC
| highlights, and instead says "Both the SEC and state-level
| agreements contain no admission or denial of wrongdoing or
| liability."
|
| Going to be interesting to see how the space develops moving
| forward. Hopefully companies that continue to mislead people will
| eventually disappear, or at least not be this popular among the
| masses.
| pm90 wrote:
| They won't. The desire for making a quick buck is too strong.
| The avalanche of marketing around crypto is going to lead many
| gullible people to "invest" in crypto and lose their money.
|
| Unless regulators shut them down or expose them quite clearly
| as mlm/ frauds I suspect this isn't going to stop.
| capableweb wrote:
| > Unless regulators shut them down or expose them quite
| clearly as mlm/ frauds I suspect this isn't going to stop.
|
| It seems, based on this action that the SEC just went through
| with, that things like BlockFi are not "clearly MLM / fraud"
| as you say, as otherwise they would indeed try to get them
| shutdown, not just slap a tiny fine on them.
| cuteboy19 wrote:
| The SEC doesn't do MLMs. Herbalife and Lularoe operate in
| broad daylight. The US has always been very kind to such
| scams
| dragonwriter wrote:
| > The SEC doesn't do MLMs.
|
| It does if they are selling securities (either as their
| main business or securities for their business).
|
| The FTC does regular MLMs.
|
| > Herbalife and Lularoe operate in broad daylight.
|
| Herbalife was restructured to settle a pyramid-scheme
| lawsuit by the FTC. [0] And subsequently also settled a
| lawsuit from the SEC. [1]
|
| LulaRoe has managed not to be sued by the FTC, but that
| seems mostly to be because that process is complaint
| driven and the complaints have instead either gone to
| state regulators or directly into private lawsuits;
| LulaRoe has a pile of direct- and class-action lawsuits
| from distributors, settled a State of Washington lawsuit
| for $4.75 million, has been sued by it's main supplier,
| etc.
|
| [0]
| https://www.consumer.ftc.gov/blog/2016/07/restructured-
| herba...
|
| [1] https://www.forbes.com/sites/lisettevoytko/2019/09/27
| /herbal...
| vinniejames wrote:
| ivalm wrote:
| Did they offer an unregulated security where there is a
| chance to lose principle to unsophisticated retail investor
| which is well known to be illegal? The answer to that is yes.
| latchkey wrote:
| Their site has always been very clear on the risks
| involved.
|
| "Digital currency is not legal tender, is not backed by the
| government, and crypto accounts held with BlockFi are not
| subject to FDIC or SIPC protections. Digital currency
| values are not static and fluctuate due to market changes."
|
| What I think has never been clear is how they were able to
| manage the risk of their lending practices, in order to
| provide the big APYs.
| skybrian wrote:
| I'm not sure how disclosure makes it not an unregistered
| security?
| matkoniecz wrote:
| Page 9 of the PDF of the actual order (linked on the page
| under "SEC Order") explains how BlockFi made misleading
| claims:
|
| > From March 2019 through August 2021, BlockFi
| misrepresented on its website that its institutional
| loans were "typically" over-collateralized, when in fact,
| most institutional loans were not.
|
| (copy of https://news.ycombinator.com/item?id=30335113 )
| w_TF wrote:
| The source(s) of the yield they were promising were extremely
| dubious and unsafe, the same can be said for Celsius.
|
| When they tell you your crypto is being lent to
| "institutional investors" what they really mean to say is
| they're gambling with your crypto in defi protocols, and you
| can see this happening on-chain.
| matthewdgreen wrote:
| >Did they fail to make interest payments as promised? Did
| they advertise an interest rate the they didn't fulfill?
|
| You could say more or less the same thing about Bernie
| Madoff's fund, at least right up until the end. I'm not
| saying that BlockFi is doing anything wrong here, but simply
| having good results for a while in a bull market doesn't make
| everything magically ok.
| Animats wrote:
| Exactly. Ponzi schemes deliver high interest rates, paid
| for by later investors. Until they don't, because the
| invested capital is gone.
|
| There's are too many of those in the crypto space.
| babyshake wrote:
| BlockFi and apps offering 7-8% interest on stablecoins
| aren't themselves likely to be ponzi schemes. If these
| "USDT isn't backed by anything" predictions come to pass,
| then they are part of a ponzi scheme. FWIW I think it is
| very unlikely that this prediction is true.
| arcticbull wrote:
| Shkrelli made all his 'victims' whole too, and still ended up
| in prison. The law takes a dim view of the whole 'ends
| justifying the means' thing.
| lottin wrote:
| > Answer to all is, no, they didn't.
|
| Exactly. The $100M fine was for double parking.
| capableweb wrote:
| Here is the full quote from the SEC statement (in case you
| missed it when you read the statement):
|
| > The order also finds that BlockFi made a false and
| misleading statement for more than two years on its website
| concerning the level of risk in its loan portfolio and
| lending activity.
|
| > Without admitting or denying the SEC's findings, BlockFi
| agreed to a cease-and-desist order prohibiting it from
| violating the registration and antifraud provisions of the
| Securities Act and the registration provisions of the
| Investment Company Act. BlockFi also agreed to cease offering
| or selling BIAs in the United States.
| vinniejames wrote:
| capableweb wrote:
| I'm not 100% sure, as I don't work for the SEC and don't
| have any special insights into this case.
|
| But I'll make a guess and say that they probably
| downplayed the risks in one way or another on their
| website, compared to statements made to the SEC. Let's
| say they say "It's risk-free!" on their website while in
| a statement to the SEC they say "There is a small risk
| customer lose their funds if X happens".
| vinniejames wrote:
| davidgerard wrote:
| > The order finds that BIAs are securities under
| applicable law
| capableweb wrote:
| It's not just about misleading claims, but also that
| BlockFi broke regulations by doing "unregistered offers
| and sales of the lending product" and "operated for more
| than 18 months as an unregistered investment company".
|
| In other words, BlockFi failed to do the bare minimum to
| run a financial investment service, and are now getting
| punished for it. That doesn't sound like a overreach to
| me.
|
| And yeah, in general, laws are usually interpreted
| subjectively, as laws usually give some wiggle-room to
| make sure it covers enough ground without having to write
| 1000 pages about every single edge-case.
| toolz wrote:
| If you follow crypto regulatory clarity with even the
| smallest curiosity you'll find these crypto companies are
| _begging_ the SEC and IRS to be more clear so they can
| comply to existing laws.
|
| This hugely successful company wants to exist legally and
| understand the laws that apply to them. This much has
| been obvious for a long time now.
| shafyy wrote:
| > _The SEC simply wants to expand their regulatory power
| outside of what they are permitted to do and is flexing
| on a big player for the media attention._
|
| No, they are not. The SEC's goal is to protect consumers
| and the general public, and like most other regulatory
| agencies, have been doing a good job at it.
|
| I feel like there is a growing distrust in the government
| (at least in the US) and this is not a good thing. If you
| don't like what the SEC is doing, get involved in a
| democractic way (voting, organizing, etc.) and change it.
| shrikant wrote:
| What sort of "intellectual DDoS" is this -- reeks of
| disingenuity.
|
| Page 9 of the PDF of the actual order (linked on the page
| under "SEC Order") explains how BlockFi made misleading
| claims:
|
| > From March 2019 through August 2021, BlockFi
| misrepresented on its website that its institutional
| loans were "typically" over-collateralized, when in fact,
| most institutional loans were not. Accordingly, although
| BlockFi made other disclosures on its website concerning
| its risk management practices, BIA investors did not have
| complete and accurate information with which to evaluate
| the risk that, in the event of defaults by BlockFi's
| institutional borrowers, BlockFi would be unable to
| comply with its obligation to pay BIA investors the
| stated interest rates or return the loaned crypto assets
| to investors upon demand. This false and misleading
| statement was in the offer and sale of BIAs, and as such
| was in the offer and sale of securities.
| coffeefirst wrote:
| I'm guessing you don't know a whole lot of people who
| work in government.
|
| They do not value media attention. They're not
| politicians, and that's not how any of this works.
| smoe wrote:
| > 22. BlockFi made a material misrepresentation to BIA
| investors concerning the level of risk in its loan
| portfolio. Beginning at the time of the BIA launch on
| March 4, 2019 and continuing to August 31, 2021, BlockFi
| made a statement in multiple website posts that its
| institutional loans were "typically" over-collateralized,
| when in fact, most institutional loans were not. When
| BlockFi began offering the BIA investment, it intended to
| require over-collateralization on a majority of its loans
| to institutional investors, but it quickly became
| apparent that large institutional investors were
| frequently not willing to post large amounts of
| collateral to secure their loans. Approximately 24% of
| institutional crypto asset loans made in 2019 were
| overcollateralized; in 2020 approximately 16% were over-
| collateralized; and in 2021 (through June 30, 2021)
| approximately 17% were over-collateralized. As a result,
| BlockFi's statement materially overstated the degree to
| which it secured protection from defaults by
| institutional borrowers through collateral. Through
| operational oversight, BlockFi's personnel failed to take
| steps to update the website statement to accurately
| reflect the fact that most institutional loans were not
| over-collateralized
|
| https://www.sec.gov/litigation/admin/2022/33-11029.pdf
| davidgerard wrote:
| https://www.sec.gov/litigation/admin/2022/33-11029.pdf
| f0e4c2f7 wrote:
| Crypto to me reads increasingly like classical finance as time
| goes by. The parallel here is that banks lobby against new
| regulation, then once the regulation exists as a moat, they
| lobby to keep the regulation.
|
| I'm sure the 100M fine didn't feel great but unless it
| bankrupts the company I doubt that BlockFi would want to go
| backwards now. For the low price of 100M they now have a map of
| how to legally do business in the space, in a way that is now
| much scarier to any would be new entrants.
|
| At its most optimistic I think crypto is trying to avoid some
| of these regulatory rube goldberg value extraction machines.
| Maybe it will in some spots, but you can see too where it may
| also just reinvent them.
| capableweb wrote:
| > Crypto to me reads increasingly like classical finance as
| time goes by. The parallel here is that banks lobby against
| new regulation, then once the regulation exists as a moat,
| they lobby to keep the regulation.
|
| If you focus on the centralized institituions like
| cryptocurrency<>centralized currencies exchanges, or
| centralized lending platforms, then yeah, they sure get
| closer and closer to classical finance (except being based
| around decentralized platforms).
|
| But if you look at actual cryptocurrencies, without focusing
| on the exchanges or any other centralized parties, they
| actually get further and further away from classical finance.
| But it requires you to read GitHub/IRC/Matrix/Forum
| discussions between developers, rather than following
| reported news.
| sirspacey wrote:
| This:
|
| "They now have a map"
|
| Regulators won't generally tell you how to comply with a
| rule, often because they don't know.
|
| So you force them to make a ruling and then have a
| proprietary roadmap.
|
| What was learned in those meetings by both parties is a huge
| moat.
|
| In the end, the SEC just got a hefty pay day for doing their
| job.
| pranavjoneja wrote:
| How is this a moat for BlockFi? Why can't a competitor do
| exactly the same thing as BlockFi without paying the $100M
| fine? Asking this question earnestly because I actually
| want to know more.
| vishnugupta wrote:
| I have a vested interest in this domain now that I'm starting
| up in this space so am closely following these and related
| products.
|
| A whole bunch of these startups have sprung up; which take up
| real money (USDT or even USD, INR etc.,) promising very
| attractive _guaranteed_ returns without locking up customers '
| fund. Look at these[1] for examples. Anyone who knows anything
| about banking in the traditional world knows how ridiculous it
| is. And indeed some of these are beginning to unravel[2]. In
| Anchor's case there are way more lenders than borrowers so
| Anchor is resorting to pay those high yields from their
| reserves. It's cutting close to being a Ponzi scheme at the
| moment.
|
| In a traditional banking world businesses take a loan either to
| cover for a short-term cashflow crunch (example an invoice
| that's delayed by their client) or for longer term investment.
| That money usually goes into economic activities which are
| expected (hoped?) to bear fruit to repay the loan.
|
| In the crypto world however such loans are taken only to be put
| back _into_ the crypto world; to be swapped into some hot new
| coin to be staked and what not. The music has got to stop at
| some point.
|
| I'm really glad SEC has been proactive. I hope regulators in
| other countries do so. Because 99% of the money flowing into
| these are totally guidable and clueless people; they need to be
| protected for their own sake.
|
| [1] https://www.pillow.fund [1] https://www.flint.money
|
| [2] https://au.finance.yahoo.com/news/anchor-protocol-
| reserves-s...
| ilamont wrote:
| _I have a vested interest in this domain now that I 'm
| starting up in this space ... 99% of the money flowing into
| these are totally guidable and clueless people_
|
| Is your startup going after the consumers? If most
| prospective customers are clueless, and many of the remaining
| customers are sharks or early investors looking for suckers,
| that doesn't bode well for new companies in this space, even
| the ones that are trying to do things right.
| vishnugupta wrote:
| You are right in general. As you could guess from the tone
| of my comment, I want the ecosystem to be cleaned up and my
| startup is going to play a role in that. It is essential
| for crypto/DeFi to go mainstream. There is a big shakeup
| coming which will weed out all these get-rich-quick
| products.
|
| Me and my co-founders are committing ourselves into this
| for the long haul (think ~10 years) so are taking it slow.
| We hope our deliberate, slow and steady approach will help
| us tide over the current short term bubble and the imminent
| burst.
| babyshake wrote:
| Are you able to speak to how your startup plays a role in
| cleaning up the ecosystem? It seems like there are a
| bunch of different types of things that need cleanup,
| everything from the likes of BlockFi and lending products
| to outright scams that are trying to steal your wallet
| credentials or steal your funds. I'd welcome any type of
| cleanup
| vishnugupta wrote:
| We are at idea-validation stage so it's very early days
| for us. The overarching theme is educating users by
| making them aware of what they are/have getting/gotten
| into. _Somewhat_ similar to rating agency in the
| traditional finance world (e.g., Moody 's) but not
| exactly like them.
| babyshake wrote:
| One related thing is that there has been a large increase
| in attempts by scammers to mimic a legitimate product
| with a fake domain, etc. You could actually detect these
| pretty well by looking at the TVL and other factors. Was
| the contract deployed fewer than 30 days ago? Have the
| amount of funds deposited to it less than the top 50/100
| contracts?
|
| A related problem is not even depositing but simply
| granting token approval to a scam app, and similar
| techniques may be used to warn users before they give
| these approvals.
| latchkey wrote:
| BlockFi has spun it as gaining clarity.
|
| https://twitter.com/BlockFiZac/status/1493256919406022656
| [deleted]
| seaourfreed wrote:
| duxup wrote:
| Looks like they broke the law.
| smt88 wrote:
| Your question is answered by literally the first sentence of
| the article.
|
| In the US, it's illegal to sell securities without registering
| with the SEC.
| ilamont wrote:
| _The order finds that BIAs are securities under applicable law,
| and the company therefore was required to register its offers
| and sales of BIAs but failed to do so or to qualify for an
| exemption from SEC registration. Additionally, the order finds
| that BlockFi operated for more than 18 months as an
| unregistered investment company because it issued securities
| and also held more than 40 percent of its total assets,
| excluding cash, in investment securities, including loans of
| crypto assets to institutional borrowers._
| shafyy wrote:
| Striking how BlockFi's official announcement reads compared to
| the SEC's statement: https://blockfi.com/regulatory-developments/
|
| _Zac Prince, CEO and Founder of BlockFi, said: "From the day we
| started BlockFi, we have always known that strong engagement with
| regulators would be critical for the adoption of financial
| services powered by cryptocurrencies. Today's milestone is yet
| another example of our pioneering efforts in securing regulatory
| clarity for the broader industry and our clients, just as we did
| for our first product - the crypto-backed loan. We intend for
| BlockFi Yield to be a new, SEC-registered crypto interest-bearing
| security, which will allow clients to earn interest on their
| crypto assets."_
| celticninja wrote:
| Company spins news to make itself look good.
|
| Nothing new here, definitely nothing unique to cryptocurrency
| companies.
| discodave wrote:
| Do you have any examples of non-crypto companies trying to
| spin a $100MM fine as "pioneering efforts in securing
| regulatory clarity"?
|
| I know companies spin, but this is next level.
| freemint wrote:
| It spins so hard, if you attached an electric generator you
| could power all the bitcoin miners. /Joke
| pavlov wrote:
| The SEC has a whistleblower program that can award up to 30% of
| the fine to a whistleblower. Here's an example of someone
| receiving $32 million:
|
| https://www.sec.gov/news/press-release/2021-211
|
| If crypto prices go down, it might become more lucrative for
| crypto employees to start talking to SEC rather than trying to
| sell their tokens.
|
| If you work at one of these places, why not start collecting
| documentation now.
| pevey wrote:
| There is also the Qui Tam route for whistleblowers in NY (or
| relating to allegations of wrongdoing that occur in NY or
| companies based in NY).
|
| https://www.nycbar.org/get-legal-help/article/employment-and...
|
| The whistleblower can get 15-30% of the penalty/settlement
| amount.
| SilasX wrote:
| Not sure the relevance, or how this story would remind you of
| that program, since BlockFi doesn't issue a token, nor was the
| product in question secret.
|
| Disclosure: used BlockFi's lending program and had pulled out
| most of my holdings for unrelated reasons by last week.
| Cederfjard wrote:
| I think it was pretty easy to follow the reasoning.
|
| Cryptocurrency companies seem too often play fast and loose
| with laws and regulations, and the SEC can and will fine
| them. In addition, whistleblowers can get handsomely
| rewarded. Ergo, it might soon start to look more and more
| attractive for a lot of employees to tell on their employers.
|
| Even if this particular case didn't go down like that, I
| still think it's an interesting point that's relevant to the
| discussion.
| SilasX wrote:
| I got that reasoning just fine, and had no trouble
| following it. I was objecting to the flimsy pretense of
| bringing it up on a case that obviously doesn't need
| whistleblowers since it was all done out in the open _and
| advertised_ , and everyone agrees on all facts-on-the-
| ground but only ever differed on legal interpretation.
|
| > Even if this particular case didn't go down like that, I
| still think it's an interesting point that's relevant to
| the discussion.
|
| There are lots of things I'm sure you and I might find
| interesting. But HN doesn't benefit from the practice of
| "ooh, let me use this topic as a pretense to post something
| I wanted to share regardless, and without reading the
| article".
| capableweb wrote:
| Agreed. The SEC claims it broke regulations by doing
| "unregistered offers and sales of the lending product",
| "operated for more than 18 months as an unregistered
| investment company" and "false and misleading statement for
| more than two years on its website concerning the level of
| risk", none of which would be exposed by a whistleblower but
| instead by just going to their website or having an account
| there. Nothing that requires someone from inside the company
| to whistleblow anything.
| pavlov wrote:
| And if that's available just by going to a crypto company's
| website, imagine what kind of evidence an insider may have
| access to.
| jdrc wrote:
| Does the program also work for bigtech employees?
| pavlov wrote:
| Any industry. But big tech tends to have less of a YOLO
| attitude to securities regulations. Public scrutiny is so
| high that crypto-style unvetted gray area products like
| Facebook's Libra don't have much change of succeeding.
| chipgap98 wrote:
| I think that program is for any industry
| BLKNSLVR wrote:
| I think the more pertinent question is 'does it work for big
| fin employees?'
|
| As regards the other comment re:lobbying, my answer to the
| above would be: it may exist, but it doesn't do much work.
| dv_dt wrote:
| Pragmatically, I would think that getting a whistleblower
| disclosure to stick would be more difficult with companies
| carrying a significant lobbying presence.
| rr808 wrote:
| Now you know why traditional payment processors are so expensive.
| You have to pay the fines + you need to pay for the armies of
| people to do the extra paperwork.
| 300bps wrote:
| ...and at the end of the day DeFi will be so regulated it will
| have all the bad parts of DeFi _and_ regular finance.
| somebodythere wrote:
| Nothing decentralized about BlockFi.
| smt88 wrote:
| Regulations are the good parts of regular finance. There are no
| financial regulations that currently harm me, a consumer.
|
| We honestly need to return to a time when we had a bit more
| financial regulation.
| smoovb wrote:
| Regulations are the costly part of regular finance. DeFi is
| exploring a low friction space in finance and need to be
| given the freedom to continue to do so.
|
| $100m fines, chargebacks, compliance, transaction fees and
| the labor behind these are all fat that could be trimmed with
| DeFi.
| rdbell wrote:
| > There are no financial regulations that currently harm me,
| a consumer.
|
| Mostly true if your main financial transactions are receiving
| bank deposits from your work & paying bills, and if you, your
| family and your friends all live in first-world countries.
| smt88 wrote:
| > _Mostly true if your main financial transactions are
| receiving bank deposits from your work & paying bills_
|
| I also own (and occasionally trade) securities, have loans
| (mortgage and auto), use credit cards, and own equity in
| private companies.
|
| The only financial thing that I don't do is sell financial
| services, which is the industry that regulations were
| designed to reign in because they tend to be filled with
| grifters.
|
| But you're correct, I am in the US.
| Animats wrote:
| Basically, the Investment Act of 1934 says:
|
| 1. You have to file a prospectus (an S-1) before collecting
| money.
|
| 2. You have to disclose a lot of stuff, like who's really behind
| this, where the money goes, what the risks are, what's happened
| so far, and what the business plan is.
|
| 3. Lying in an S-1 is a crime.
|
| Crypto schemes tend to violate 1), because 2) would show that
| their scheme is a scam, and if they tried to cover that up, 3)
| would put them in jail.
|
| There's grumbling about "paperwork", but that's just an excuse.
| It's the part about having to disclose all that stuff under
| penalty of perjury that scammers hate.
| thebean11 wrote:
| Is BlockFi a scam though? Fraud is not what they are getting
| fined for, and it sounds like they can continue to operate if
| they meet these reporting requirements, and that the company
| intends to do that.
| Animats wrote:
| They misrepresented how their assets were collateralized,
| creating a false impression of safety. That's fraud.
| [deleted]
| sbierwagen wrote:
| Check out the interest rates on their crypto accounts:
| https://blockfi.com/rates/
|
| A guaranteed 9.25% APY on crypto deposits when US dollar
| savings accounts at FDIC banks do 0.50% is odd. Where is the
| extra money coming from?
| ar_lan wrote:
| If you check DeFi rates, 9.25% is fairly low currently.
| Animats wrote:
| And that is why S-1 filings exist - to provide the answer
| to such questions. Somewhere, for this to work, there must
| be people paying more than 9.25% to borrow money. Who are
| they? What collateral are they putting up? Whatever the
| borrowers are doing must be high risk, or they wouldn't be
| paying interest that high.
|
| In effect, this is a junk bond they're selling - high
| interest, with a high chance of losing the principal. Those
| are semi-legitimate financial products (but see Michael
| Milliken). However, if you invest in junk bonds, you have
| to evaluate them, and you don't own just one. You own a
| broad portfolio of them, collateralized by different
| things, expecting some of them to fail and some to succeed.
| This is why there are junk bond funds. Some of which fail,
| because too many of the risks were correlated.
|
| If someone in the DeFi sector is selling this, the funds
| are probably being used to finance some other crypto-
| related scheme. Not building a factory or an apartment
| building, which you could probably finance at 3-4% right
| now. So you're probably buying into a speculation that some
| crypto product goes up. You're buying with a capped upside,
| an uncapped downside, and no visibility into the risks.
| cwp wrote:
| Well, the downside is capped at "you lose all the money
| you invested". I think. Did I miss something?
| sbierwagen wrote:
| That is a much worse risk than basically any other
| investment!
|
| If you buy gold, the price will fluctuate, but it won't
| be _lost._ If you bought the Dow at the peak in 1929 and
| held it all the way to the bottom then you lost 89% of
| your money, but it didn 't actually go to zero. When
| Ponzi schemes evaporate, the money _disappears._ You can
| sign on to whatever class action lawsuit comes out of it,
| but the lawyers are going to eat most of the proceeds.
|
| It's more options trading than "investing", and
| Robinhood's profits demonstrate that most people lose
| money on options.
|
| Blockfi's yields remind me of money market funds in 2008.
| They looked like bank accounts, and paid out mostly sane
| yields, but the fine print said "not a bank account, may
| evaporate". Well, when it threatened to evaporate,
| everyone freaked out:
| https://www.investopedia.com/articles/economics/09/money-
| mar...
|
| When the NFT staking people are advertising yields of
| 132%,
| https://twitter.com/Route2FI/status/1492940519965605890
| that's a huge blinking red sign that says _SCAM SCAM
| SCAM,_ but 9.25% isn 't as big of a warning as it should
| be. The moral hazard of every market bubble is
| sophisticated actors chasing yield on the way up, then
| claiming you were swindled, bamboozled, and had no idea
| what you were getting into, and urgently need a bailout
| when the bubble pops.
| hermitdev wrote:
| In general, yeah, you're capped at everything you
| invested basically ceasing to exist. Unless you bought on
| margin. Then, you can end up owing money, even if the
| asset is worthless.
|
| Not crypto related, but one of the things that made the
| financial collapse of 2008 so much worse were the number
| of institutions that were over leveraged at the time and
| couldn't make the margin calls when assets started
| tanking. The fund I worked for at the time was leveraged
| as high as 40:1 at one point around that period. We
| exited the crisis leveraged closer to 10:1.
|
| The problem with firms being overleveraged is when the
| margin call comes, it starts a snowball effect. To make
| the margin call, you have to liquidate assets, most
| likely at a loss, which further drives asset prices in
| the market down, increasing margin requirements in a
| vicious feedback loop. It's not uncommon for a firm hit
| with a big margin call like this to end up having to sell
| everything for pennies on the dollar.
|
| I won't name names, but I worked a few high profile
| blowups during my tenure in finance, one of which was the
| very high profile bankruptcy of one of the banks that was
| allowed to fail in the US another was a boutique hedge
| fund that doubled down on a bad energy bet. Neither was
| pretty. But, in both cases, the root cause was the same:
| failure to properly understand the risk of the
| investments they were making either in part or in whole.
| Data quality in the risk system at the large bank was
| especially atrocious, BTW.
| landemva wrote:
| Another thing that made 2008 worse was bank regulators
| napping for a few years. Those ratings on mortgage debt
| stunk and nobody cared.
| thebean11 wrote:
| According to them they lend the money out to institutions
| and traders. Margin rates can be pretty high.
| AlexandrB wrote:
| That's how banks make money too. However, banks must also
| consider the risk of their debtors defaulting on their
| loans. They pass those risks on to you in the form of
| very low interests rates on money deposited, while
| keeping your deposit "safe". It seems like BlockFi was
| passing the risk on in the form of an undisclosed risk of
| losing all your money. That's the part the SEC seems to
| have a problem with:
|
| > The order also finds that BlockFi made a false and
| misleading statement for more than two years on its
| website concerning the level of risk in its loan
| portfolio and lending activity.
|
| The point is there's no free lunch. If you're making 9+%
| on your deposit don't be surprised if your account is
| wiped out when BlockFi's debtors fail to pay.
| ryanSrich wrote:
| Conflating anything related to crypto as a scam is just lazy
| and anti-intellectual. This is one of HN's weakest traits IMO.
| I find great value in following topics and threads on HN, but
| it's unrelenting hate for crypto and crypto adjacent topics is
| unfounded.
| [deleted]
| jiggawatts wrote:
| https://youtu.be/YQ_xWvX1n9g
|
| A rant over two hours long about the endless grift and
| unfettered scamming that is crypto.
|
| Two _hours_ , and it doesn't even cover all of it.
| NelsonMinar wrote:
| We are literally discussing a company being found by the SEC
| to have sold an investment asset without appropriate
| disclosure and that asset being closed to American investors.
| This is not the example to make your case with.
| ryanSrich wrote:
| Why not? I could find countless SEC violations that are far
| worse than this from banking institutions that I guarantee
| you use on a weekly or monthly basis. Are those scams?
| sailfast wrote:
| FWIW, no. After the savings and loan crisis a lot of that
| went away.
|
| Especially not typically fraudulent are the APY yield
| savings accounts whose deposits are insured.
|
| Also I doubt you could find countless violations outside
| of (maybe?) insider trading based on MNPI at these
| institutions, but if you know of them you should report
| them - whistleblowers can make a lot of money!!
| NelsonMinar wrote:
| Yes, yes they often are. But I think you'll be hard-
| pressed to find many examples of legitimate banks having
| their primary customer offering being declared illegal
| and forced to stop operation immediately.
| omeze wrote:
| Erm, from recent memory: Wells Fargo (3rd largest US
| bank) had a nice 185 million fine for checking account
| fraud... https://en.m.wikipedia.org/wiki/Wells_Fargo_acco
| unt_fraud_sc...
|
| Not saying this justifies BlockFi's behavior but the
| incentives for any bank is there!
| schmichael wrote:
| > it's unrelenting hate for crypto and crypto adjacent topics
| is unfounded.
|
| How is it unfounded? The carbon and ewaste problems are well
| documented. Any fixes for that (eg Proof of Stake) have
| either compromised Bitcoin's original focus on
| decentralization, continually delayed release, or both. Over
| a decade after Bitcoin's launch few use cases have emerged
| and none of them have proven durable. The ICO craze came and
| went. DeFi is still muddling along with ever more convoluted
| cryptoshadows of regulated fiat finance. NFTs are all the
| rage but currently about as intellectually stimulating as
| baseball cards. Hacks and scams abound far beyond any other
| industry.
|
| Both "sides" of the crypto debate are welcome to share their
| opinions on HN. The constant stream of blockchain links on HN
| makes me think there are plenty of at least crypto-curious
| folks around. I'm not sure why the pro side feels so
| attacked. Share your thoughts. Share your use cases. Advance
| the field. Prove us on the other side wrong.
| ryanSrich wrote:
| > How is it unfounded? The carbon and ewaste problems are
| well documented.
|
| Without a benchmark this means nothing. Just because a new
| technology contributes to ewaste we should just ignore it
| and bury it? No use in trying to fix it right? Just kill
| the technology because it contributes to ewaste. That
| doesn't make any sense. Not to mention the majority of the
| uproar around Crypto being a danger to the environment is
| completely overblown
| https://www.cnbc.com/2021/07/20/bitcoin-mining-
| environmental...
|
| > Over a decade after Bitcoin's launch few use cases have
| emerged and none of them have proven durable
|
| Durable in what sense? I can take some Bitcoin right now
| and purchase almost anything I want. Seems like that money
| use case is pretty durable to me.
|
| > The ICO craze came and went. DeFi is still muddling along
| with ever more convoluted cryptoshadows of regulated fiat
| finance. NFTs are all the rage but currently about as
| intellectually stimulating as baseball cards. Hacks and
| scams abound far beyond any other industry.
|
| You're just conflating scams with crypto as a technology.
| If you can't find merit in cryptocurrency while at the same
| time thinking NFTs are mostly a scam you lack imagination.
|
| I'll be the first one to admit I think the following are
| all mostly scams, useless, or only serve to create bag
| holders:
|
| - NFTs
|
| - DAOs
|
| - ICOs (not really a thing anymore)
|
| That doesn't deter me one bit from thinking that Bitcoin,
| ETH, and a handful of layer 1s are genuinely useful in
| creating technology to digitize money and decentralize
| finance. How long is it going to take? Idk. 10 years seems
| like not enough time. Idk why people are complaining about
| the lack of use cases. Something as ground breaking as
| disrupting the banking system is going to be a multi-decade
| long endeavour. Scams will come and go. That seems like a
| natural progression.
| bduerst wrote:
| That article you link is out of date.
|
| Global BTC energy consumption is now double[1] what it
| was in July, meaning the claim that it's somehow getting
| better spurious. The article also acknowledges that the
| energy consumption criticism _is_ a valid issue (even
| despite the stats being out of date).
|
| [1] https://ccaf.io/cbeci/index
| jgalt212 wrote:
| In general I agree, but there's just so much damn smoke.
| BLKNSLVR wrote:
| How much smoke billows off Wall Street though? Didn't that
| particular garbage fire get re-lit surprisingly soon after
| the GFC?
|
| I'm somewhat pro-crypto for it's anti-establishment roots
| (which are barely visible these days) and so I find it
| interesting that the standard it's held to is much higher
| than that for existing 'finance' - for which the bar is
| incredibly low, seemingly for the only reason that society
| has developed a callous against all that (g)rubbing.
| notahacker wrote:
| > I find it interesting that the standard it's held to is
| much higher than that for existing 'finance'
|
| It isn't though. It's has all the worst aspects of Wall
| Street, more wolves and a few unique problems, without
| the redeeming feature of it facilitating massive amounts
| of real world activity, and you'll still find more people
| on here defending even crypto's most blatant scams than
| you'll find arguing that securitising subprime mortgages
| is the future of homebuying but just had a few teething
| problems.
| floodyberry- wrote:
| "finance is corrupt" doesn't work in favor of crypto
| because insofar as crypto addresses the issue, it only
| allows finance to be even _more_ corrupt
| BLKNSLVR wrote:
| I genuinely think cryptocurrency makes transparent what
| 'finance' (and the powers attached to it) would prefer
| remain opaque.
| almost wrote:
| Boy are we going to look stupid when a non-scam crypto use
| comes out! Total egg on our collective faces! One of these
| days! I mean obviously not today, but soon, right?
| babyshake wrote:
| Setting aside other ways crypto can and is being used, the
| most interesting thing about DeFi IMO is its compositional
| (and decompositional) nature. This mostly results in
| reinventing things that already existed in Wall St and
| other areas of the finance world, but are now available for
| anyone to use.
| bduerst wrote:
| Can you give specific examples of these 'things' though?
| shemnon42 wrote:
| Becoming a market maker, liquidity pools, yield farming,
| flash loans (short term borrowing of lots of money)
| sailfast wrote:
| Becoming "your own" domain registrar without having to
| deal with ICANN was another interesting one to me (after
| checking into how all those .eth domains popped up).
|
| It was exciting when I first looked at it and then I
| realized that this was actually not "democratizing"
| anything so much as ensuring a new class of folks would
| be able to create new centralized "everythings" in a new
| environment outside of the current system - without the
| benefit of the years of testing, regulation, and (sure)
| cruft that our current systems have because they're
| subject to political forces (which is actually a
| feature).
|
| Maybe starting the wild west over again is a good thing?
| My money's on "not really" at the moment.
| ryanSrich wrote:
| How is me taking some bitcoin and purchasing something
| online instantly with near zero fees a scam? Please explain
| with precise language how that is a scam. That's a use
| case. Now tell me how it's a scam.
| xmonkee wrote:
| Tell me what you're buying.
| ryanSrich wrote:
| My most recent PC build was created entirely from parts
| bought on Newegg.com. Newegg accepts bitcoin as payment.
| We're not in 2009 anymore where people only buy drugs
| with Bitcoin.
| davidcbc wrote:
| I love having to file taxes documents for every
| transaction I make. Great currency
| danbruc wrote:
| Does Newegg do anything with the Bitcoins or are they
| immediately converting them into Dollars?
| bduerst wrote:
| IIRC Newegg is using Bitpay, which costs ~1% and settles
| to USD daily. It also means no refunds allowed (even in
| USD) to the customer using it, only store credit.
| mbesto wrote:
| Which is an entirely pointless way to transact commerce
| for 99% of the population. I get my paycheck in USD and
| then buy goods and services with it. If it converts to
| BTC and then BTC back to USD then whats the point? It's
| just paying with a credit card with extra steps.
|
| What's the use case here?
| davidcbc wrote:
| If you're using bitcoin you aren't purchasing anything
| instantly. Transaction confirmation is currently taking
| ~7 minutes.
| bduerst wrote:
| Rule of thumb is you have to wait ~20 minutes (two
| blocks) for the verification.
|
| That's a long time to hold up the line at the grocery
| check out.
| sireat wrote:
| Not much of a use case unless you want to move large
| amounts.
|
| https://ycharts.com/indicators/bitcoin_average_transactio
| n_f... - and current $1.76 is considered low compared to
| $50 per transaction craziness. So you have to go offchain
|
| Again, I paid BTC for a laptop 9 years ago and it made
| sense for me then since it was mined BTC from 11 years
| ago.
|
| In order to use BTC you need to obtain BTC and
| transaction fees kill any normal day to day use case.
|
| This leaves BTC for less than legal uses where you do not
| care about fees.
|
| So BTC itself might not qualify as a scam but as a mega
| enabler of scams and illegal activity.
|
| EDIT: that $1.76 is just a on-chain fee for the network,
| most stores will charge you extra to use BTC since they
| do not care about BTC they want to cash out immediately
| so they use a 3rd party.
|
| So unless you get paid in BTC you have very little reason
| to use BTC for payments.
| bluecalm wrote:
| Even the most blatant scams, literal pyramids called MLMs
| often have some useful product to muddy the waters. I
| mean you can after all but that toothpaste and shampoo
| from Amway and use it!
| ryanSrich wrote:
| Yes. The PC parts on bought on Newegg.com with Bitcoin
| sure are contributing to a crypto scam. How could I have
| not seen this?
| Tarsul wrote:
| you're right but what I find even more jarring in crypto-
| threads is that usually the only argument (or at least the
| most prolific one) from the pro-crypto side is that the
| argument of the anti-crypto side is off-based. But that is
| not an argument pro-crypto that's at most an argument that's
| crypto-neutral. But maybe that's enough for the pro-crypto
| crowd because neutrality means that the show goes on.
| Nevertheless, it's seldom good enough for great discussions.
| ryanSrich wrote:
| Being pro-crypto is like being pro-internet or pro-money.
| It doesn't make sense to say that. If I use Bitcoin to buy
| something legally online is that a scam? Am I getting
| scammed? Is the other person getting scammed? I just don't
| understand why people ignore the fact that crypto is a
| utility. Sure, you can hate a company that scams users into
| thinking their crypto token has some intrinsic value and
| then rug pulls a month later. I'm unsure how that's an
| indictment of the crypto as a technology. That's like
| hating email because people use it to execute phishing
| scams.
| [deleted]
| clpm4j wrote:
| Genuinely curious, if you're based in the US, why do you
| choose to spend your BTC as money? Why not spend your USD
| instead (for the computer parts that you mentioned in
| another comment)?
| z16a wrote:
| Please clearly articulate how Blockfi is a scheme or a scam.
| AlexandrB wrote:
| It's in the article:
|
| > The order also finds that BlockFi made a false and
| misleading statement for more than two years on its website
| concerning the level of risk in its loan portfolio and
| lending activity.
|
| Just because a scam hasn't imploded yet, doesn't mean it's
| not a scam.
| altairprime wrote:
| > _BlockFi made a false and misleading statement for more
| than two years on its website concerning the level of risk in
| its loan portfolio and lending activity._
|
| As the order linked above indicates, BlockFi knowingly
| deceived investors. In the financial/investing context of
| this discussion, "to scheme" is to plan and execute
| deception, with intent of personal gain. Thus, my attempt to
| reword using your provided language rather than the order's:
|
| > _BlockFi's scheming led investors to believe that BlockFi
| was a lower-risk investment than it was in reality._
|
| Note that any errors in translation from SEC wording to your
| provided terminology are my own, and that I'm making a good-
| faith effort to help build a verbal bridge from your
| confusion to an example of specific language in the order
| that addresses it. If my verbal bridge is insufficient, then
| please accept my apologies and I hope you're able to find the
| answers you seek from others, or in the order itself.
|
| (I am not your lawyer, this is not legal advice.)
| nikanj wrote:
| Luckily they can run the whole scheme from Elbonia, and people
| are more than happy to send over cryptos from the US.
| numtel wrote:
| Well, there is Nexo which is basically the same but
| headquartered in Bulgaria.
| cuteboy19 wrote:
| That's almost exactly how Tether (USDT) works. Except instead
| of Elbonia we have the Caymans
| altairprime wrote:
| Note that Tether moving to the Caymans inspired the UK
| finregs to investigate the UK accounting company that's now
| running Tether's books, so I wouldn't consider the Caymans
| to be a successful escape yet:
| https://www.ft.com/content/e86f8d72-918c-4a80-a4bf-
| de3110316...
| seaourfreed wrote:
| [deleted]
| wmf wrote:
| Some people have a "lightning doesn't strike twice" theory about
| the SEC where getting busted once means you can do the same thing
| 10x more in the future and won't be busted again. So a $100M fine
| today unlocks billions in "legitimate" profit tomorrow.
| frankbreetz wrote:
| This seems like an insane theory, it's like saying if you
| commit an assault you won't be a suspect for murder later.
| Committing a crime generally make the authorities look at you
| more closely.
| smoovb wrote:
| Why would a business pay the this large fine, unless it lead to
| their continued existence and profitability. In this case the
| word 'fine' is better thought of as 'registration fee'. Being
| forced to stop their current product (BIAs) and relaunch the
| new Yield product seems to indicate the new product has the
| SEC's blessing.
| mouzogu wrote:
| I've had trouble finding clear jargon-free sources to explain how
| these lending platforms and various defi lending platforms
| generate yield.
|
| As far as I can tell it mostly works by token inflation. Celsius,
| Nexo tokens, Compound and Aave tokens for example.
|
| But these tokens are given as a reward to yield farmers so there
| is a huge sell pressure and yet I don't understand who is on the
| buy side. Why would you buy these reward tokens. It seems strange
| to me.
| cdiddy2 wrote:
| Compound and Aave both existed before they had tokens and there
| was still yield on the platforms. The yield is from borrowers
| paying interest to the lenders.
| trulyme wrote:
| Who is borrowing at such rates though? Genuinly curious.
| discodave wrote:
| Where are the borrowers investing the tokens to generate
| profit to pay interest to the lenders?
|
| Like, are they investing in real estate that pays rent?
| Companies that pay dividends?
| dbodin11 wrote:
| TLDR
| https://www.kontxt.io/document/d/-Y-SdZU31lVnH33gE_v0IR9wOaC...
| MisterBastahrd wrote:
| P1: Would you like to buy this banana?
|
| P2: That's an apple.
|
| P1: No, it's a banana.
|
| P2: Dude, that's clearly an apple.
|
| P1: Okay, it's an apple, but by pretending it's yellow and long,
| we're bypassing the rules for selling apples.
|
| P2: That's not.... that's now how any of this works
| dna_polymerase wrote:
| HSBC got fined $84M for laundering mexican drug cartel money. The
| proportions don't add up.
|
| https://www.complianceweek.com/regulatory-enforcement/hsbc-h...
| mint2 wrote:
| Yeah hsbc should have been fined more.
| consumer451 wrote:
| Shouldn't the director(s) be held responsible at all? It
| seems like if people escape consequences this behavior will
| continue.
| missedthecue wrote:
| Only if you can prove they committed a crime. HSBC has more
| than 230,000 employees. Statistically, someone will always
| be doing something wrong.
| missedthecue wrote:
| They paid $84M to the European regulator.
|
| The US regulator made them pay $1.9 Billion.
|
| https://www.reuters.com/article/us-hsbc-probe/hsbc-to-pay-1-...
| risho wrote:
| Is there something about Gemini's version of the interest bearing
| account that makes it less problematic than Blockfi's offering?
| Why is it that Blockfi has taken so much heat and Gemini has
| seemed to fly completely under the radar? Does this suggest that
| the issue was the marketing and the implementation that was the
| issue rather than the product itself?
| rabite wrote:
| Blockfi was the easiest case to make in the room, but Gemini
| and Celsius are now being investigated by the SEC as of last
| month.
|
| https://www.bloomberg.com/news/articles/2022-01-26/crypto-le...
| capableweb wrote:
| I guess it could have something to do with that Gemini is a
| registered exchange and regulated by the NYDFS, while BlockFi
| goes the more traditional cryptocurrency exchange route of
| "Let's see what turns out to be illegal when we get there".
| notpachet wrote:
| That route has a pithier name: "disruption"
| 300bps wrote:
| Read Blockfi's press release:
|
| https://blockfi.com/regulatory-developments/
|
| _BlockFi is first participant in new regulatory framework for
| crypto sector_
|
| They're the first participant. They won't be the last. Police
| can't pull over every car at the same time and neither can the
| SEC go after every actor simultaneously. What the SEC has now
| though is a precedent of cooperation.
| pazimzadeh wrote:
| Same question, with Celsius.
| cypherpunks01 wrote:
| Coindesk writes, "The SEC is reportedly investigating Voyager
| Digital, Gemini Trust and fellow crypto lender Celsius
| Network." There is no difference.
| [deleted]
| SilasX wrote:
| The SEC is apparently looking at Gemini too, though it didn't
| seem to get a lot of discussion (sorry, "have legs") when the
| stories came out:
|
| https://www.bloomberg.com/news/articles/2022-01-26/crypto-le...
|
| Disclosure: have significant holdings in Gemini's lending
| program and used to in BlockFi's.
| endorphine wrote:
| Would you mind elaborating on why you chose to make the
| disclosure? It puzzles me because I don't see how it's
| relevant to the rest of the comment.
| SilasX wrote:
| Sure, after you justify why you'd object to someone
| disclosing more bias than they have to. (And my comment
| throttling lets up.)
| endorphine wrote:
| I'm not objecting; this was an honest question.
| abritrum wrote:
| I (along with other) have been filing whistleblower reports on
| blatant price manipulation on an OTC stock for the entirety of
| last year (about 30 reports of naked short selling, wash
| trading). Not one peep from the SEC. It's been eye-opening to see
| the amount of fraud in the financial markets that goes unchecked.
| Sometimes I question my sanity that I persist in this stock and
| whether what I see is illegal. Good to see that they are going
| after bigger fish, letting the smaller ones go.
| chollida1 wrote:
| I"ll bite on this. I work in the financial markets and have
| alot of experience in market structure.
|
| What evidence do you have of wash trading? How would you tell
| if something is a wash trade? How would you determine if
| someone is naked shorting? What evidence would you provide for
| something like this?
| snapcaster wrote:
| Gamestop bagholder I presume? How do you detect or prove naked
| shorting or wash trading?
| PragmaticPulp wrote:
| > on blatant price manipulation on an OTC stock
|
| Which stock?
|
| There are a lot of cult-ish communities around certain stocks
| that "know just enough to be dangerous" and end up
| misinterpreting a lot of signals as naked shorting and such.
| The narratives sound good to people who are holding the stock,
| but they're almost always completely flawed.
|
| If the complaints are basically coming in bulk with the same
| reports that can be traced back to a Reddit post or something,
| they're probably going straight to the trash.
| PragmaticPulp wrote:
| Where is the $100 million going to come from? Do they have that
| much money to spare? Or are their customers about to take a
| haircut?
|
| On that topic, where does BlockFi's profit come from? They're
| offering 9% (previously 12%) interest on deposits. Are they
| really re-loaning that money to other people at the 20-30%
| interest rate required to produce those returns (high interest
| rates come with high default rates, so you need to overshoot your
| target by a lot to make up for defaults).
| yellow_postit wrote:
| Loans have max 50% LTV and their loan rates are at least 4.5%.
|
| They must be reinvesting elsewhere similar to other bank models
| just a lot riskier, more opaque, and less regulation (for now).
|
| They've meaningfully cut interest rates over time as well often
| in response to market volatility.
| notahacker wrote:
| Not sure _borrow at 9% to lend at 4.5%_ is that similar to
| bank business models...
| shawabawa3 wrote:
| They likely re-lend on crypto platforms where thanks to
| incentives and high borrow demand you can relatively easily get
| 15+% yields
|
| For example anchor protocol offers 20% APY on UST deposited in
| it, and has done consistently for 6+months. As long as the peg
| holds and the protocol is solvent it's "free" money
| vineyardmike wrote:
| FYI. Anchor is almost out of money to pay that yield.
|
| https://au.finance.yahoo.com/news/anchor-protocol-
| reserves-s...
| shawabawa3 wrote:
| They topped that up with another $450M
|
| https://agora.terra.money/t/capitalising-anchors-reserve-
| wit...
| heyitsguay wrote:
| Doesn't that just push the same question back a level? Where
| are these other platforms getting their profits from to
| sustain such high yields? If there's high demand for high-
| interest crypto loans, that means there should be platforms
| one can point to to trace the source of profit - the high-
| interest loans that fund the high-yield deposit platforms
| that fund this medium-yield deposit platform?
|
| The whole thing sounds incredibly scammy.
| nazgulnarsil wrote:
| not if more tether can be printed from thin air to pay the
| interest.
| xur17 wrote:
| Fwiw, UST != USDT.
| tcgv wrote:
| Not sure how BlockFi works exactly but most lending DeFi apps
| have really high collateral requirements and liquidate
| positions in case of violation of collateral requirements
| charging a penalty to close open positions early and ensure
| protocol assets are preserved before a "default" event can ever
| happen.
|
| They're not really "capital efficient".
| xur17 wrote:
| If you have some time, this [0] is a pretty good write up of
| a number of different cefi lending platforms. The part I find
| most interesting is that most places lend to Genesis Trading
| to generate most of their return, in some cases also lending
| out smaller portions themselves.
|
| [0] https://prohashing.com/guides/earning-interest-on-crypto
| AJ007 wrote:
| I think a lot of these yields from "crypto" are on paper, and
| it's misleading the "defi" operators and their investors in to
| thinking they have huge returns. That's the only way that would
| systematically explain lending tokens at very high interest
| rates.
| mdoms wrote:
| https://www.reddit.com/r/blockfi/comments/skxiei/blockfi_hor...
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