SEC stops short of fining Linus Financial for unregistered sale of retail crypto lending product
The Securities and Exchange Commission (SEC) has announced settled charges against Linus Financial, Inc. for failing to register the offers and sales of its retail crypto lending product, the Linus Interest Accounts.
The SEC determined not to impose civil penalties against Linus Financial because of the Nashville-based company’s cooperation and prompt remedial actions.
According to the SEC’s order, in or around March 2020, Linus Financial began to offer and sell Linus Interest Accounts in the United States. These accounts allowed U.S. investors to tender U.S. dollars to Linus Financial in exchange for Linus Financial’s promise to pay interest. Linus Financial converted investors’ cash into crypto assets, pooled the crypto assets, and controlled how the pooled assets were used to generate income for Linus Financial itself and for investors’ interest payments.
The order finds that the Linus Interest Accounts were offered and sold as securities, and that the offers and sales did not qualify for an exemption from SEC registration. Therefore, Linus Financial was required to register its offers and sales of the Linus Interest Accounts.
According to the SEC’s order, on March 25, 2022, shortly after the SEC announced charges against a similar crypto asset investment product, Linus Financial voluntarily ceased offering the Linus Interest Accounts to new investors and asked existing investors to withdraw their funds by late April 2022. All investor funds have since been withdrawn.
Without admitting or denying the SEC’s findings, Linus Financial agreed to a cease-and-desist order prohibiting it from violating the registration provisions of the Securities Act of 1933.