In the appropriate case in our securities defense practice, we sometimes advise clients to self-report a violation and the client’s efforts to correct the violation. The rationale is that the SEC views self-reporting in a positive light when determining sanctions, and the reporting can avoid lengthy and costly investigations and litigation. Linus Financial took steps to correct its potential violation and avoided any fines or penalties. – Mark Astarita
Sept. 7, 2023 — The Securities and Exchange Commission (SEC) has announced a settlement with Linus Financial, Inc. over charges related to the unregistered offer and sale of its retail crypto lending product, the Linus Interest Accounts. The SEC decided not to impose civil penalties on Linus Financial due to the company’s cooperation and swift remedial actions.
Failure to Register Linus Interest Accounts
According to the SEC’s order, Linus Financial initiated the offer and sale of Linus Interest Accounts in the United States in or around March 2020. These accounts allowed U.S. investors to provide U.S. dollars to Linus Financial in exchange for the company’s commitment to pay interest. Linus Financial converted investors’ funds into crypto assets, managed the pooled assets, and determined how they generated income for both the company and investors’ interest payments. The SEC’s order determined that Linus Interest Accounts were indeed securities, and their offers and sales did not meet SEC registration exemptions. Consequently, Linus Financial was obligated to register these offerings and sales.
Prompt Corrective Action by Linus Financial
The SEC’s order further notes that on March 25, 2022, shortly after the SEC charged a similar crypto asset investment product, Linus Financial voluntarily ceased offering Linus Interest Accounts to new investors. Additionally, the company requested existing investors to withdraw their funds by late April 2022, and all investor funds have been successfully withdrawn.
Statement by Stacy Bogert, Associate Director of the SEC’s Division of Enforcement
Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, emphasized the SEC’s commitment to enforcing federal securities laws while also encouraging cooperation and swift remediation in cases of non-compliance. She stated, “Today’s settlement provides a valuable message to other market participants about the importance of cooperation and remediation.”
Cease-and-Desist Order Issued
Linus Financial, without admitting or denying the SEC’s findings, has agreed to a cease-and-desist order that prohibits the company from violating the registration provisions of the Securities Act of 1933.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
