Key Takeaways
- As per the DFPI, BlockFi violated several provisions of the California Financing Law (CFL).
- BlockFi filed for Chapter 11 bankruptcy in November 2022, after FTX collapsed
The California Department of Financial Protection and Innovation (DFPI) has permanently revoked the license of bankrupt BlockFi. The decision, announced on November 7, comes after a lengthy investigation by the DFPI, revealing several violations of state finance laws by the troubled firm.
The regulatory action marks the end of BlockFi’s operations in California, almost two years after the DFPI initially suspended the company’s lending license in November 2022.
According to the DFPI, BlockFi violated several provisions of the California Financing Law (CFL). One of the main issues identified was the company’s failure to assess borrowers’ ability to repay loans before issuing credit. The lender was also found to have charged customers interest on loans even before the loan proceeds were released.
As per the statement, BlockFi failed to provide mandatory credit counseling to its clients and did not report payment performances to credit bureaus as required by law. The firm also did not accurately disclose annual percentage rates (APRs) in its loan documents, misleading consumers about the true cost of borrowing.
DFPI Commissioner Clothilde V. Hewlett stated the importance of regulatory compliance in her statement, saying, “While we encourage innovation in our financial marketplace, companies must comply with laws and protect consumers in accordance with those laws to continue doing business in California.”
The DFPI which levied a $175,000 fine on BlockFi, chose to waive it, citing the firm’s ongoing bankruptcy process and the priority of consumer restitution. The DFPI accused BlockFi of violating CFL by failing to accurately disclose annual percentage rates (APRs) in loan disclosure documents, failing to provide consumers with credit counseling, and not reporting payment performance to credit bureaus
BlockFi filed for bankruptcy in November 2022 citing a “lack of clarity” around FTX’s separate bankruptcy. The two firms were financially entangled; BlockFi had significant exposure to FTX, including a $400 million credit line extended to FTX US. FTX’s sudden downfall led to a ripple effect, destabilizing BlockFi and pushing it into insolvency.
Following its bankruptcy filing, BlockFi attempted to restructure its assets and began working on a recovery plan for its creditors. In March 2024, the company reached a settlement with the estates of FTX and Alameda Research, securing up to $875 million in potential repayments.
BlockFi started distributing these assets to creditors in July 2024 through the Coinbase exchange, as part of an interim recovery plan. Despite the ongoing financial efforts, BlockFi aims to repay 100% of customer claims, although the final value will be determined based on the date of the bankruptcy filing rather than current crypto market prices. Earlier this year, BlockFi took steps to wind down its operations, including shutting down its web platform in May 2024.
