The Securities and Exchange Commission (SEC) has reached a settlement with Linus Financial, Inc. for the inability to record the offers and sales of its crypto lending product known as the Linus Interest Accounts. The SEC opted not to impose civil penalties on the Nashville-based company, citing the company’s cooperation and prompt remedial actions.
Records from the SEC warrant indicate that Linus Financial initiated the offering and sale of the Linus Interest Accounts in the US around March 2020. These accounts allowed U.S. investors to provide U.S. dollars to Linus Financial, which promised to pay interest in return. The company then converted this money into crypto assets, pooled these assets and determined their use to generate income, both for the company and interest payments to investors. The SEC’s warrant identified these accounts as securities. It further states that these offers and sales did not meet the criteria for an exemption from SEC filing, making it mandatory for Linus Financial to file them.
On March 25, 2022, following the SEC’s indictment of a similar crypto asset investment product, Linus Financial voluntarily stopped offering the Linus Interest Accounts to new investors. The company has also requested its existing investors to raise their funds by the end of April 2022. As of now, all investors’ funds have been returned.
Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, commented, “The SEC remains committed to ensuring that companies comply with federal securities laws. However, we also strive to motivate companies to cooperate and provide immediate implement corrective actions when discrepancies are identified. Settlement sends a clear signal to other market players about the importance of cooperation and remediation.”
Without acknowledging or refuting the SEC’s conclusions, Linus Financial has agreed to a cease and desist order. This order prohibits the Company from violating the registration provisions of the Securities Act of 1933.
The investigation into this case was led by Randall D. Friedland and Brittany K. Frassetto, under the direction of Pei Y. Chung and Ms. Bogert.
For those interested in more details on crypto-assets, the SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force previously published an Investor Bulletin on crypto-asset interest-bearing accounts. Comprehensive information on crypto assets is also available on Investor.gov.
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