Linus Financial Settles Dispute with SEC Out of Court
Nashville-based crypto platform Linus Financial has reached a settlement with the SEC outside of court. The company had previously offered pooled crypto investment opportunities to users in exchange for fiat currency. However, after another firm faced regulatory trouble over a similar product, Linus voluntarily ceased operations.
Unregistered Securities Offering
Unlike many recent SEC lawsuits surrounding token sales, this case focused on interest-garnering accounts offered by Linus. The SEC claimed these accounts should be classified as securities and did not qualify for an exemption from registration.
According to the SEC, for a financial product to be considered a security, it must pass the Howey Test, which involves a reasonable expectation of profit derived from the efforts of others. Since users only needed to purchase an investment account to benefit from Linus’ trading services, the SEC deemed these accounts as securities.
No Penalties Due to Cooperation
Fortunately, Linus Financial will not face penalties for the unregistered offering. Instead, the SEC has agreed to a cease-and-desist order. Stacey Bogert, the Associate Director of the SEC’s Enforcement Division, believes this settlement will encourage other firms to cooperate and take corrective action when necessary.
Linus Financial suspended the sale of accounts in March 2022 and guided existing users to close their accounts within a month after the SEC announced charges against a similar crypto asset investment product.
Hot Take:
Linus Financial’s settlement with the SEC demonstrates the importance of compliance and cooperation in the crypto industry. By voluntarily winding down operations and cooperating with the SEC, the company avoided significant penalties. This case serves as a reminder to other market participants to proactively address regulatory concerns and take prompt corrective action when required. The SEC’s decision to suspend penalties in exchange for a cease-and-desist order sends a message to the industry about the benefits of cooperation and remediation.
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