Fintech firm settles with SEC over crypto lending product

Linus Financial, a Tennessee-based financial technology company, has settled with the US Securities and Exchange Commission for alleged securities laws violations.

Linus agreed to stop offering its retail crypto lending product. Per the settlement agreement, Linus Financial opted to neither confirm nor deny the charges, the SEC said Thursday.

According to the regulator, Linus offered its retail crypto lending product between March 2020 and April 2022.

Linus converted tendered assets into USDC and either transferred the USDC into liquidity pools on decentralized finance platforms or directly lent the USDC to institutional borrowers to generate returns for retail investors. Interest rates were generally between 3.5% and 4.5%, the SEC said.

The SEC claims that the retail product contained an investment contract, thus subjecting it to laws under the Securities Act.

In March 2022, after increased regulatory scrutiny on the crypto lending industry, Linus opted to unwind its retail product, directing investors to withdraw funds and closing the offering to new investors. All investor funds had been claimed by late April 2022, the regulator said.

In light of Linus’ proactive decision to halt the product in 2022, on Thursday, the SEC said it would not be imposing civil penalties against Linus, instead opting to issue a formal cease and desist to the company from offering the product again.

Stacy Bogert, associate director of the agency’s Division of Enforcement, said that “[t]he SEC will continue to hold companies accountable for failing to comply with federal securities laws.”