The U.S. Securities and Exchange Commission (SEC) has reached a settlement with Linus Financial, Inc., a Nashville-based company, regarding its crypto lending product called Linus Interest Accounts. Notably, the SEC has chosen not to impose civil penalties on the firm, citing Linus Financial’s cooperation and prompt corrective actions as key factors for this leniency.
Linus Financial had introduced Linus Interest Accounts in March 2020, allowing U.S. investors to convert fiat currency into cryptocurrency assets while promising interest payments. However, the SEC determined that these accounts should be classified as securities, requiring registration, which Linus Financial had not obtained.
Crucially, upon realizing this oversight, Linus Financial ceased offering the accounts to potential investors on March 25, 2022. Additionally, they implemented a process that allowed existing investors to withdraw their investments by the end of April 2022, ensuring a full refund. The SEC commended the company for its swift response and corrective measures.
Stacy Bogert, the associate director of the SEC’s enforcement division, emphasized the agency’s desire for corporations to collaborate and promptly rectify any errors.
This action by the SEC stands out amidst ongoing debates about the agency’s enforcement proceedings and its role in shaping cryptocurrency regulations. While critics argue that the SEC uses enforcement actions as a means of indirectly creating laws, the approach taken with Linus Financial demonstrates a different perspective.
This development is particularly timely given the discussions surrounding the SEC Stabilization Act, which aims to restructure the agency and potentially remove its current chairman, Gary Gensler. Consequently, the Linus Financial case contributes a fresh viewpoint to the broader conversation on regulating cryptocurrencies.
Despite challenges, the SEC appears to be inclined towards fostering a cooperative approach rather than a punitive one when dealing with new financial products in the crypto industry.