Zac Prince

Circle and BlockFi questioned on banking with SVB by Warren and AOC

Circle and BlockFi executives were questioned after the lawmakers accused Silicon Valley Bank of “coddling” and giving “white glove” treatment to its largest depositors.

Executives at the stablecoin issuer Circle and the bankrupt cryptocurrency lender BlockFi have been questioned by two members of Congress investigating the so-called “mutual backscratching arrangements” alleged to have taken place with the now-failed Silicon Valley Bank.

On April 9, letters from Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez (AOC) were sent to Circle, BlockFi and 12 other non-crypto tech firms asking a series of questions on each firm’s relationship with SVB.

The lawmakers stated that more needs to be known about SVB’s reported “coddling” and “white glove” treatment towards its largest depositors in order to understand if these firms played a role in SVB’s collapse.

Jeremy Allaire and Zac Prince, the respective chief executives of Circle and BlockFi, were questioned on the length of their financial relationships with SVB and t amounts deposited with the bank, along with what “agreements” were made between their firms.

*Senator Elizabeth Warren and Representative Alexandra Ocasio-Cortez’s letter to Circle CEO Jeremy Allaire. Source:* *U.S. Senate*

In addition, the pair wanted to know if SVB offered “perks” such as low-interest rate mortgages or SVB-sponsored “ski trips, conferences and fancy dinners.”

“Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors,” Warren and AOC wrote.

They added the extent of SVB’s depositors in the tech industry resulted “in an abnormally high percentage of deposits” not insured by the Federal Deposit Insurance Corporation and questioned the executives on “the role that companies like yours might have played in precipitating the $42 billion single-day-run on SVB.”

“Obtaining information on these factors is important for understanding how SVB failed and how to prevent the next failure,” they added.

Warren and AOC said they believe it may explain why some customers, such as Circle, placed extremely large amounts of uninsured deposits at SVB.

Shortly after SVB collapsed, Circle disclosed that it had $3.3 billion tied up at SVB, while BlockFi was found to have $227 million in uninsured deposits with the bank.

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BlockFi execs, Gemini named in lawsuit by disgruntled investor

Gemini is accused of providing BlockFi with custodial services and misleading information to help BlockFi market its alleged unregistered securities.

An investor with nearly $2 million worth of funds frozen in bankrupt cryptocurrency lender BlockFi has filed a class-action complaint against its founders, two directors and crypto exchange Gemini.

In a Feb. 28 complaint filed in the U.S. District Court for the District of New Jersey, investor Trey Greene accused the defendants of numerous wrongdoings, including violating the consumer fraud and exchange acts and breaching its fiduciary duties, as well as offering and selling unregistered securities.

“The unregistered securities sold by the BFI [BlockFi] Defendants on behalf of BlockFi were marketed and sold via a steady stream of misrepresentations and material omissions by Prince and Marquez over several years and through intermittent misrepresentations by Defendant Gemini.”

Greene claims he invested over $1.5 million in interest accounts that are alleged to be unregistered securities, accruing over $400,000 in capital gains and earned interest that was re-invested.

He is currently unable to withdraw the funds, however, after BlockFi froze all withdrawals on Nov. 10 — the same day that FTX filed for bankruptcy.

*Filing of the proposed class-action lawsuit. Source: Bloomberg Law*

Greene further claims that he was induced into buying the “unregistered securities” by misrepresentations from BlockFi founders Zac Prince and Flori Marquez that the offerings were comparable to federally-insured bank products.

While the Securities and Exchange Commission charged BlockFi with “failing to register the offers and sales of its retail crypto lending product” on Feb. 14, the filing claims the exchange “admitted its [interest] accounts were unregistered securities” during the proceedings, which resulted in a $50 million settlement on Feb. 15.

Tyler Winkevoss’ Gemini previously held custody over BlockFi’s clients’ crypto holdings through its custodial services, and is alleged to have misrepresented how accessible these funds were to customers.

“Gemini knew of, and acquiesced in, the materially false and misleading statements about the status the safety and accessibility of Plaintiff’s and class members’ assets at Gemini and about the risks of loss. Gemini supplied materially false and misleading information to BlockFi for use in marketing the BIAs [BlockFi interest accounts].”

Gemini is alleged to have breached the exchange act but was not included in the other allegations.

Greene is seeking damages for each of the alleged counts, including “treble damages” for violations of the consumer fraud act, the costs of his lawyers to be covered, a full refund of all funds acquired by the defendants and accrued interest, as well as a judgment preventing similar violations of the consumer fraud act.

Those represented in the class action are any stockholders of BlockFi that purchased their BlockFi unregistered BlockFi Interest Accounts between March 4, 2019 and Nov. 10, 2022

The defendants will be served with a summons, and must respond to the complaint within 21 days of receiving it or be required to pay the full amount demanded by Greene.

Cointelegraph has reached out to Gemini and BlockFi but did not receive a response by the time of publication.