The collapse of FTX Trading Ltd. has resulted in a ripple effect, resulting in a wave of failures of other cryptocurrency firms. The latest is BlockFi Lending, LLC. Having filed for bankruptcy and having had its lending license suspended by California’s Department of Financial Protection and Innovation after it paused all withdrawals following FTX’s collapse, BlockFi is now facing the revocation of that license.
The DFPI has announced that, as a result an investigation which followed the suspension of BlockFi’s lending license, it has determined that BlockFi violated California financing laws and regulations, including failing to consider a borrower’s ability to repay those loans.
BlockFi had until December 30th to request a hearing, otherwise the DFPI’s commissioner, Clothilde V. Hewett, will likely issue an order revoking BlockFi’s lending license. Whether BlockFi will request a hearing is in doubt as BlockFi did not seek to appeal its suspension by the DFPI and has already settled DFPI allegations that it violated California securities laws. Should the DFPI revocation go into effect, BlockFi will be permanently barred from making loans in the State of California, but the license revocation will likely not result in existing borrowers escaping their repayment obligations.
With the almost daily news of cryptocurrency firm failures and other legal other serious legal issues facing players in the crypto space, we at TALG will continue to monitor the developments in crypto and stand ready to advise our clients as to those developments.
