California Revokes BlockFi's License, Ending Its Presence in State's Lending Market Following Investigation and Bankruptcy

The California Department of Financial Protection and Innovation (DFPI) has officially revoked the license of BlockFi, a crypto lender that declared bankruptcy nearly two years ago.

This decision wraps up an investigation that started when the DFPI suspended BlockFi’s operations back in November 2022.

As part of a settlement, BlockFi agreed to give up its license and stop its unlawful practices. This effectively ends BlockFi's presence in California's lending market. The DFPI is committed to protecting consumer interests, and this move reinforces that focus.

The DFPI found that BlockFi broke state financial regulations. They didn’t assess whether borrowers could repay their loans, and they charged interest before actually providing the loan funds. On top of that, BlockFi failed to offer essential credit counseling to borrowers and didn’t report payment histories to credit agencies.

“While we encourage innovation in our financial marketplace, companies must comply with laws and protect consumers to continue doing business in California,” said DFPI Commissioner Clothilde V. Hewlett.

Regulators also discovered that BlockFi inaccurately presented loan interest rates in their documents. Initially, the DFPI issued a $175,000 penalty for these violations but later waived it, prioritizing consumer reimbursement due to BlockFi’s bankruptcy situation.

BlockFi's financial troubles worsened following the collapse of FTX in November 2022, a company with which it had deep financial ties. Earlier that year, in July, BlockFi had extended a $400 million credit line to FTX US and held an additional $275 million loan with the exchange. This relationship made FTX one of BlockFi’s largest unsecured creditors, adding more strain after FTX's downfall.

In March 2024, BlockFi reached an $875 million settlement with the estates of FTX and Alameda Research. By July, the company had begun distributing initial payouts to its creditors, facilitated through Coinbase. As of April 2023, BlockFi's estimated liabilities ranged between $10 billion and involved over 100,000 creditors.