The Securities and Exchange Commission will most likely to be the first to get paid in the lineup of creditors crypto exchange BlockFi owes money to, Sasha Hodder, founder of Hodder Law, a firm that specializes in crypto law, said Tuesday.
Hodder told CoinDesk TV’s “First Mover” the regulator is “in line, in front of retail creditors.”
“The customers are really at the bottom of the list here,” Hodder said, saying it is far-fetched that they will get their money back.
BlockFi, which has an estimated $257 million cash on hand, owes the SEC $30 million. In February, the crypto lender reached a $50 million settlement with the agency for failing to register the offering and sale of its crypto lending product. It also agreed to pay another $50 million to states that had filed similar charges. About $30 million of the SEC's fine is unpaid.
The Jersey City, N.J.-based exchange, which filed for Chapter 11 bankruptcy protection on Monday and simultaneously sued FTX founder Sam Bankman-Fried’s Emergent Fidelity Technologies holding company, is looking to recover the $400 million worth of Robinhood Market shares (HOOD) that Bankman-Fried's company posted as collateral. BlockFi also has about $355 million in crypto assets frozen on FTX, a crypto exchange that collapsed this month and filed for Chapter 11 bankruptcy itself on Nov. 11.
On Tuesday, Hodder said the SEC’s fine of BlockFi could also be a message for the crypto industry more broadly.
“What the SEC is trying to say is that all of this lending activity should be considered a debt security,” Hodder said. “And if it was a security, then it would have to be held on a platform that met certain regulatory standards.”
Still, the falls of BlockFi and FTX may have been prevented “if the SEC had regulated harder against these companies,” Hodder said.
“You'd think a $100 million fine would be a strong signal, but it didn't stop the other companies that were already engaged in this activity from continuing on for another few months,” she said.
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