Linus Financial Settles SEC Charges Over Unregistered Crypto Lending Product

The Securities and Exchange Commission (SEC) has settled charges with Linus Financial, Inc. over its failure to register the offers and sales of its crypto lending product, known as the Linus Interest Accounts. The SEC has opted not to impose civil penalties on the Nashville-based firm, citing the company's cooperation and swift remedial measures.

Data from the SEC's order reveals that Linus Financial initiated the offer and sale of the Linus Interest Accounts in the U.S. around March 2020. These accounts permitted U.S. investors to provide U.S. dollars to Linus Financial, which in return promised to pay interest. The firm then converted this cash into crypto assets, pooling these assets and determining their use to generate income both for the company and for the interest payments to investors. The SEC's order has identified these accounts as securities. It further states that these offers and sales did not meet the criteria for an exemption from SEC registration, making it mandatory for Linus Financial to register them.

On March 25, 2022, following the SEC's charges against a comparable crypto asset investment product, Linus Financial voluntarily halted the offer of the Linus Interest Accounts to new investors. The company also requested its existing investors to retrieve their funds by the end of April 2022. As of now, all the funds from investors have been returned.

Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, commented, "The SEC remains committed to ensuring companies adhere to federal securities laws. However, we also aim to motivate firms to cooperate and implement immediate corrective measures when discrepancies are identified. The current settlement sends a clear signal to other market players about the significance of collaboration and rectification."

Without acknowledging or refuting the SEC's conclusions, Linus Financial has consented to a cease-and-desist order. This order restricts the firm from breaching the registration stipulations of the Securities Act of 1933.

The investigation into this matter was spearheaded by Randall D. Friedland and Brittany K. Frassetto, under the guidance of Pei Y. Chung and Ms. Bogert.

For those interested in further details on crypto assets, the SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force has previously published an Investor Bulletin on Crypto Asset Interest-bearing Accounts. Comprehensive information on crypto assets is also available at Investor.gov.