Recently, Linus Financial found itself in the center of regulatory scrutiny for its involvement in financial offerings involving crypto assets. In an unexpected move, the Securities and Exchange Commission (SEC) chose not to impose any severe penalties against the company, giving a new perspective to the regulation of crypto businesses.
A Little Background
Linus offered US investors the opportunity to invest in their interest-bearing securities, “Linus Interest Accounts”. Investors could instantly exchange fiat currencies for innovative accounts that promised periodic returns. To fulfill its promise, Linus would convert fiat deposits into USDC, a crypto asset, which could then be allocated to decentralized finance platforms or lent to institutional borrowers, with the ultimate intention of generating substantial revenue to pay the promised interest rate to investors.
Gaining Traction With Attractive Rates
As the SEC noted in its court filing, the rates of interest proposed by Linus ranged between 3.50% APY and 4.50% APY, a figure considerably higher than what conventional banks offer. Once investors saw their daily interest payments begin almost immediately, the offer gained traction.
The Hiccup In Operations
Despite its promising start, Linus found itself in troubled waters when the SEC examined its operations. The central issue was that the sale and offer of their products were conducted without registration, which the SEC claimed was similar to securities and thus in violation of regulations.
In March 2022, following discussions with the SEC and after the settlement of a high-profile crypto platform, Linus decided to cease its operations. Existing investors had their funds (including interest earned) transferred to their bank accounts usually within a 5-day period.
The Recent Verdict
Recent verdicts from the SEC have been out of the ordinary. Recognizing the corrective actions taken by the company, the SEC decided against imposing any civil penalties. The regulatory body nevertheless mandated that Linus must refrain from any actions that could violate provisions of the Securities Act in the future.