A Tennessee-based cryptocurrency asset business avoided a civil penalty in reaching settlement with the Securities and Exchange Commission (SEC) over its alleged failure to register the offer and sale of its crypto lending product.

Linus Financial agreed to cease and desist from further violations as part of the settlement, the SEC announced in a press release Thursday. The agency acknowledged Linus’s prompt remedial actions and cooperation in not levying a monetary penalty.

The details: In or around March 2020, Linus began the offer and sale of its lending product, “Linus Interest Accounts,” in the United States, according to the SEC’s order.

Linus allowed U.S. investors to exchange fiat currency for the promise of periodic interest payments, per the order. To accomplish this, the company would convert investors’ cash into crypto assets, pool the crypto assets, and control how the pooled assets were used to create profit for itself and investors, the SEC said.

Linus offered interest rates on fiat currency ranging between 3.5 to 4.5 percent annual percentage yield, significantly higher than what most investors would receive in a checking or savings account at the time, per the order.

The SEC found the accounts constituted an investment contract and were therefore securities, which require registration with the agency.

Compliance considerations: When BlockFi Lending agreed to pay $100 million in a settlement with the SEC and states in February 2022 regarding its lending product being deemed a security, Linus took notice.

A month later, Linus informed its investors it would cease operations and asked them to withdraw funds by April 22, 2022, at which point their accounts would stop accruing interest.

Stacy Bogert, associate director of the SEC’s Division of Enforcement, said in the release the agency wants to “encourage companies to cooperate and take prompt corrective action when problems arise.”

“[The] settlement provides a valuable message to other market participants about the importance of cooperation and remediation,” she added.

Linus ceased operations after the April 2022 withdrawals. A representative for the company could not be reached for comment.

Jeff Dale is the Digital Editor of Compliance Week. He previously worked as a copy editor with the Boston Herald and Patriot Ledger in Quincy, Mass., and is a former city editor of The Hour Publishing Co. in Norwalk, Conn.View full Profile

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