Linus Financial, a player in crypto asset-related financial offerings, recently found itself at the epicenter of regulatory scrutiny. However, in a surprising move, the Securities and Exchange Commission (SEC) has refrained from imposing stringent penalties on the firm, casting a new light on the regulatory path for crypto businesses.
A Little Background
Linus was offering U.S. investors the chance to dive into its interest-bearing “Linus Interest Accounts.” These innovative accounts allowed investors to instantly exchange their traditional fiat currency with the promise of periodic returns.
To fulfill its promise, Linus would then convert the deposited fiat into USDC, a type of crypto asset. These assets would then either be directed into decentralized finance platforms, bolstered by advanced smart contracts, or be lent out to institutional borrowers. Both avenues were aimed at generating substantial revenue, which would be used to provide the promised interest to its investors.
Gaining Traction with Attractive Rates
The interest rates proposed by Linus were anything but stagnant, as the SEC emphasized in its court filing. They were subject to regular changes, dictated by the ebbs and flows of crypto asset credit markets. Historically, these rates oscillated between 3.50% APY and 4.50% APY—a figure substantially higher than conventional banks offered. Once onboard, investors saw their deposits start earning interest almost immediately, calculated on a day-to-day basis.
Linus’s allure wasn’t just confined to its interest rates. With a hassle-free withdrawal system in place, investors could request their funds, inclusive of earned interest, to be transferred to their bank accounts, typically processed within a five-day window.
The Hiccup in Operations
Despite its promising start, Linus found itself navigating rough waters when the SEC zoomed in on its operations. The central issue lay in the absence of a filed registration statement for the offer and sale of their Interest Accounts. The SEC argued that these offerings were akin to securities, and their sale without proper registration was a breach of regulations.
Recall that in March 2022, following discussions with the SEC and in the aftermath of another high-profile settlement involving a crypto platform, Linus took the decision to halt its operations. Existing investors were prompted to pull out their funds, and the company declared that the interest accumulation would cease by April of the same year.
The recent verdict from the SEC marks a significant departure from anticipated outcomes. Recognizing the prompt corrective measures Linus undertook and their cooperative stance throughout the investigation, the SEC has decided to hold back from imposing a civil penalty on the firm, which is not at all what the crypto community was expecting. The regulatory body has, however, mandated that Linus must cease any actions that might infringe upon the stipulations of the Securities Act in the future.
