BlockFi’s License Permanently Revoked in California After 2 Years of Bankruptcy

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As a researcher with years of experience in the financial sector and a keen interest in the digital asset space, I find it disheartening but necessary to witness regulatory bodies taking decisive action against non-compliant players like BlockFi. The California Department of Financial Protection and Innovation (DFPI) has shown a clear commitment to consumer protection and adherence to regulations by permanently revoking BlockFi’s license due to multiple compliance violations.

Following two years since its bankruptcy, the Department of Financial Protection and Innovation (DFPI) in California has decisively rescinded BlockFi’s operating license permanently. This action comes after a thorough examination of its lending procedures and a focus on ensuring customer reimbursement rather than imposing penalties, as part of ongoing investigations.

Permanent License Revocation 

The California Department of Financial Protection and Innovation (DFPI) has permanently taken away the lending permit of BlockFi, a failed cryptocurrency lender. This action was announced on November 7, after a thorough investigation by the DFPI, which had previously suspended BlockFi’s license in November 2022. As part of its settlement with the DFPI, BlockFi has agreed to stop engaging in risky practices and violations of regulations.

Violations and Regulatory Findings

According to the investigation conducted by the DFPI, BlockFi was found to have breached several regulations related to lending practices in California. The results of this examination suggest that BlockFi failed to evaluate a borrower’s ability to repay loans, began charging interest before the funds were disbursed, and did not offer credit counseling to consumers. Additionally, the company neglected to share clients’ payment histories with credit bureaus and provided inaccurate information about annual percentage rates in loan agreements.

Commissioner Clothilde Hewlett of the Department of Financial Protection and Innovation underscored the necessity of upholding consumer protection and adhering to legal requirements when conducting business within California’s financial sector.

Hewlett noted, 

In our financial market, we always promote fresh ideas and growth. However, it’s crucial for businesses to adhere to the law and prioritize consumer protection throughout their operations.

Fine and Settlement Details

In the agreement, BlockFi was penalized $175,000 for breaking California’s Financial Lending (CFL) regulations. However, the Department of Financial Protection and Innovation (DFPI) chose to forgive this penalty, focusing instead on helping consumers, due to BlockFi’s bankruptcy situation. Currently, BlockFi is not functioning, and the DFPI has made it clear that the company will not resume operations in California.

BlockFi’s license withdrawal came several months following its closure in May. Since then, the platform has ceased operation, leaving clients unable to access their BlockFi accounts and effectively marking the end of the company’s customer services.

Background and Ongoing Issues Post-FTX Collapse

In November 2022, BlockFi’s financial difficulties were made known to the public after the well-known failure of Sam Bankman-Fried’s FTX trading platform. It appears that BlockFi had significant investments in FTX, potentially as much as $1.2 billion, which eventually led the digital lending company to seek bankruptcy protection. By April 2023, it was estimated that BlockFi’s debt exceeded $10 billion, impacting more than 100,000 creditors.

In early parts of this year, BlockFi managed to reach a settlement with the FTX estate, which could result in up to $874 million being repaid to them. This deal allowed BlockFi to sell their claims against FTX, and they plan to distribute these funds to their creditors. The goal of the FTX estate is to refund clients in full, but the amount each client receives will depend on the date they filed for bankruptcy, rather than the current rates of the cryptocurrency market.

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2024-11-08 18:08