BlockFi Lending LLC - Consent Order for Unregistered Securities

STATE OF MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS CORPORATIONS, SECURITIES, AND COMMERCIAL LICENSING BUREAU

In the matter of: Agency No. ENF-22-020040 BlockFi Lending LLC Unregistered Respondent. _______________________/ Issued and entered This _____ day of ____________________________, 2022

CONSENT ORDER IN LIEU OF CEASE AND DESIST PROCEEDINGS

Linda Clegg ("Administrator"), Director of the Corporations, Securities, and Commercial Licensing Bureau ("Bureau") within the State of Michigan Department of Licensing and Regulatory Affairs, has the authority and responsibility to enforce the Michigan Uniform Securities Act, 2008 PA 551, as amended, MCL 451.2101 et seq. ("Act") and the rules and orders issued thereunder. BlockFi Lending LLC ("BlockFi") is a New Jersey-based financial services company that offered and sold interest-bearing digital asset accounts called BlockFi Interest Accounts ("BIAs"), through which investors lend digital assets to BlockFi in exchange for BlockFi's promise to provide variable monthly interest payment. State securities regulators, as members of the North American Securities Administrators Association ("NASAA"), formed a working group (the "Multistate Working Group") and conducted an investigation into whether BIAs involved the offer and sale of unregistered securities by BlockFi to retail investors. This Consent Order in Lieu of Cease and Desist Proceedings ("Consent Order") is effective on the issued and entered date and is entered against BlockFi. The Consent Order sets forth alleged violations of the Act and resolves alleged violations of MCL 451.2301 and MCL 451.2401 by BlockFi in the offer and sale of BIAs to Michigan residents. BlockFi has cooperated with state securities regulators and the Multistate Working Group conducting the investigation by responding to inquiries, providing documentary evidence and other materials, and providing access to facts relating to the investigations. BlockFi has advised the Multistate Working Group of its agreement to resolve the investigation pursuant to the terms specified in this Consent Order (the "Order") and pursuant to the multistate resolution recommended by the Multistate Working Group.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 1

4th March

BlockFi will cease and desist offering or selling the BIAs or any security that is not federal covered, exempt, or registered to new clients in the United States and cease accepting further investments or funds in the BIAs by current U.S. clients, unless and until the BIAs or other securities are federal covered, exempt, or registered. BlockFi shall pay up to a total of fifty million dollars ($50,000,000.00) in settlement payments divided equally among the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands and paid to each of the 53 Jurisdictions that enter into a consent order pursuant to the terms of BlockFi's agreement with the Multistate Working Group. BlockFi elects to waive permanently any right to a hearing and appeal under MCL 451.2604(2) and (3) and the Administrative Procedures Act, 1969 PA 306, as amended, MCL 24.201 et seq., with respect to the entry of this Order. BlockFi admits the jurisdiction of the Bureau in this matter. Solely for the purpose of terminating the Multistate Working Group investigation and in settlement of the issues contained in this Consent Order, BlockFi, without admitting or denying the findings of fact or conclusions of law contained in this Order, consents to the entry of this Consent Order. NOW, THEREFORE, the Administrator of the Act enters this Consent Order:

1. FINDINGS OF FACT

2. The Bureau has jurisdiction over this matter pursuant to MCL 451.2301, MCL 451.2604,
   and MCL 451.2610.

3. BlockFi Inc., a Delaware corporation, incorporated on August 1, 2017, with offices at 201
   Montgomery Street, Suite 263, Jersey City, New Jersey, is a financial services company that, through its subsidiaries, generates revenue through cryptocurrency and other digital asset trading, lending, and borrowing, as well as investments and other types of transactions.

4. BlockFi Trading LLC, a Delaware limited liability company formed on May 28, 2019, with
   offices at 201 Montgomery Street, Suite 263, Jersey City, New Jersey, is a wholly owned subsidiary of BlockFi Inc. and acts as a money transmitter that accepts money and digital assets from investors and transfers the funds to BlockFi for investment in BIAs.

5. BlockFi, a Delaware limited liability company formed on January 11, 2018, with offices at
   201 Montgomery Street, Suite 263, Jersey City, New Jersey, is a wholly owned subsidiary of BlockFi Inc. and an affiliate of BlockFi Trading LLC and is the issuer of the BIAs.

6. Starting on January 7, 2021, members of the Multistate Working Group contacted BlockFi
   to notify it that it may have offered and sold securities that may not comply with state securities laws.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 2

1. On July 19, 2021, New Jersey filed a summary cease and desist order alleging BlockFi and
   its parent and affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

2. On July 22, 2021, Alabama filed an order to show cause alleging BlockFi and its parent
   and affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

3. On July 22, 2021, Texas filed a notice of hearing alleging BlockFi and its parent and
   affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

4. On July 22, 2021, Vermont filed a show cause order alleging BlockFi and its parent and
   affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

5. On July 29, 2021, Kentucky filed an emergency cease and desist order alleging BlockFi
   and its parent and affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

6. On September 23, 2021, Washington filed a statement of charges alleging BlockFi and its
   parent and affiliate, BlockFi Inc. and BlockFi Trading LLC, were offering and selling unregistered securities in the form of BIAs.

7. On February 14, 2022, BlockFi agreed to cease and desist offering and selling BIAs
   nationwide to new investors in the United States and cease and desist accepting further investments or funds in the BIAs by current U.S. investors, including in Michigan. THE OFFER AND SALE OF SECURITIES NATIONWIDE

8. From at least March 4, 2019 through February 14, 2022 (the "Relevant Period"), BlockFi
   has offered and sold securities in the form of interest-bearing digital asset accounts called BIAs and marketed, offered, and sold those securities to Michigan residents.

9. On March 4, 2019, BlockFi publicly announced the launch of the BIA, through which
   investors could lend digital assets to BlockFi and in exchange, receive interest, "paid monthly in cryptocurrency." Interest began accruing the day after assets were transmitted to BlockFi and compounded monthly, with interest payments made to accounts associated with each BIA investor, in digital assets, on or about the first business day of each month.

10. Investors in BIAs lent digital assets to BlockFi in exchange for BlockFi's promise to
    provide a variable monthly interest payment.

11. BlockFi represented it generated the interest it paid BIA investors by deploying investors'
    digital assets in various ways, including loans made to institutional investors, lending U.S. dollars to retail investors, and investing in digital assets, equities, and futures.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 3

1. Under BlockFi's terms for the BIA, investors:
   grant BlockFi the right, without further notice to [the investor], to hold the cryptocurrency held in [the] account in BlockFi's name or in another name, and to pledge, repledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer, invest or use any amount of such cryptocurrency, separately or together with other property, with all attendant rights of ownership, and for any period of time and without retaining in BlockFi's possession and/or control a like amount of cryptocurrency, and to use or invest such cryptocurrency at its own risk.

2. BlockFi offered and sold BIAs to obtain digital assets for the general use of its business,
   namely to use the assets in its lending and investment activities, which generated income both for BlockFi and to pay interest to BIA investors. BlockFi pooled the loaned assets, and exercised full discretion over how much to hold, lend, and invest. BlockFi had complete legal ownership and control over the digital assets loaned to it by BIA investors and advertised that it managed the risks involved.

3. To begin investing in a BIA, an investor could transfer digital assets to the digital wallet
   address assigned by BlockFi to the investor or purchase digital assets with fiat currency from BlockFi Trading LLC for the purpose of investing in a BIA. BlockFi Trading LLC accepted the digital asset or fiat from the investor, and then transferred the asset to BlockFi. BlockFi did not hold private keys for the investors' wallet addresses; rather, investors' digital assets were sent to BlockFi's wallet addresses at third-party custodians.

BlockFi Inc. 3)BlockFi (Parent OCompany)

Lending lends crypto 3 to institutional borrowers

Institutional Borrowers

BlockFi Trading transfers Other BlockFi Lending LLC crypto to BlockFi Lending BlockFi Trading LLC subsidiaries (BIA Issuer) Institutional borrowers pay interest

BIA ,-E- \ BlockFi Investor BlA investor transfers Lending pays crypto to (or fiat to buy Interest to BIA investor BlockFi Trading crypto from)

1. BIA investors were permitted to withdraw the equivalent to the digital assets they loaned to BlockFi and accrued interest at any time, with some limitations, and could borrow money in U.S. dollars against the amount of digital assets deposited in BIAs.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 4

1. BlockFi adjusted the interest rates payable on BIAs for particular digital assets periodically,
   and typically at the start of each month. BlockFi set the rates based, in part, on "the yield that [BlockFi] can generate from lending," to institutional borrowers, and thus interest rates were correlated with the efforts that BlockFi put in to generate that yield. BlockFi periodically adjusted its interest rates payable on the BIAs in part after analysis of current yield on its investment and lending activity. BIA investors could demand that BlockFi repay the loaned digital assets at any time.

2. As of March 31, 2021, BlockFi and its affiliates held approximately $14.7 billion in BIA
   investor assets. As of December 8, 2021, BlockFi and its affiliates held approximately $10.4 billion in BIA investor assets, and had approximately 572,160 BIA investors, including 391,105 investors in the United States.

3. As of December 31, 2019, BlockFi and its affiliates held approximately $2,198,364 in BIA
   investor assets from Michigan residents. As of December 31, 2020, BlockFi and its affiliates held approximately $48,856,150 in BIA investor assets from Michigan residents. As of December 31, 2021, BlockFi and its affiliates held approximately 134,648,211 in BIA investor assets from Michigan residents. MARKETING BLOCKFI'S BIA

4. BlockFi offered and sold the BIA securities to investors, including retail investors, through
   advertising and general solicitations on its website, www.blockfi.com. BlockFi also promoted distribution of the BIA offering through its social media accounts, including YouTube, Twitter, and Facebook. In addition, through its "Partner" program, an affiliate marketing program in which participants could "earn passive income by introducing your audience to financial tools for crypto investors," BlockFi extended its distribution of the BIA securities to retail investors through certain offers and promotions.

5. BlockFi regularly touted the profits investors may earn by investing in a BIA. When
   announcing the BIA, BlockFi promoted the interest earned, promising "an industry-leading 6.2% [annual percentage yield]," compounded monthly. BlockFi described it as "an easy way for crypto investors to earn bitcoin as they HODL."

6. Within the first few weeks of launching the BIA, BlockFi again touted investors' potential
   for profit. On March 20, 2019, BlockFi announced that BIAs experienced significant growth, including from large firms who participated in BIAs "as a way to bolster their returns." BlockFi asserted that its "mission is to provide the average crypto investor with the tools to build their wealth," and that it "look[ed] forward to giving even more investors a chance to earn a yield on their crypto."

7. On April 1, 2019, BlockFi began to "tier" the interest rates that investors received, initially
   announcing that "BIA balances of up to and including 25 [Bitcoin] or 500 Ether will earn the 6.2% APY interest rate. All balances over that limit will earn a tiered rate of 2% interest." Even when changing the interest rates customers receive, BlockFi touted the yields to investors. On August 27, 2021, BlockFi stated that

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 5

the adjustments to interest rates are done "with the goal of maintaining great rates for the maximum number of clients."

1. On January 1, 2021, BlockFi advertised that it had "distributed more than $50 million in
   monthly interest payments to [its] clients."

2. As of November 1, 2021, the interest rates BlockFi paid investors ranged from 0.1% to
   9.5%, depending on the type of digital asset and the size of the investment. For example, investors could receive 9.5% in interest for up to 40,000 Tether ("USDT") and 8.5% for anything over 40,000 USDT, as well as 4.5% interest for up to 0.1 Bitcoin ("BTC"), 1% for 0.1 to 0.35 BTC, and 0.1% for anything over 0.35 BTC. MISREPRESENTATION OF COLLATERALIZATION PRACTICES FOR INSTITUTIONAL LOANS

3. BlockFi's offer of BIAs included on its website a statement of material fact that was untrue
   or omitted a statement of material fact necessary to make the statement made not misleading in light of the circumstances under which it was made from March 4, 2019 to August 31, 2021, concerning its collateral practices and, therefore, the risks associated with its lending activity.

4. Beginning at the time of the BIA launch on March 4, 2019 and continuing to August 31,
   2021, BlockFi made a statement in multiple website posts that its institutional loans were "typically" over-collateralized, when in fact, most institutional loans were not.

5. When BlockFi began offering the BIA investment, it intended to require over-
   collateralization on a majority of its loans to institutional investors, but it quickly became apparent that large institutional investors were frequently not willing to post large amounts of collateral to secure their loans.

6. Approximately 24% of institutional digital asset loans made in 2019 were over-
   collateralized; in 2020 approximately 16% were over-collateralized; and in 2021 (through June 30,

7. approximately 17% were over-collateralized.

8. As a result, BlockFi's statement materially overstated the degree to which it secured
   protection from defaults by institutional borrowers through collateral. Through operational oversight, BlockFi's personnel failed to take steps to update the website statement to accurately reflect the fact that most institutional loans were not over-collateralized.

9. Although BlockFi made other disclosures on its website regarding its risk management
   practices, because of BlockFi's misrepresentations and omissions about the level of risk in its loan portfolio, BIA investors did not have complete and accurate information with which to evaluate the risk that, in the event of defaults by its institutional borrowers, BlockFi would be unable to comply with its obligation to pay BIA investors the stated interest rates or return the loaned digital assets and accrued interest to investors upon demand. FAILURE TO COMPLY WITH REGISTRATION REQUIREMENTS

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 6

1. During the Relevant Period, BlockFi's offer and sale of BIAs was not done subject to a
   preemption, exception, or exemption from registration under MCL 451.2301.

2. During the Relevant Period, BlockFi offered and sold securities in Michigan that were not
   federal covered, exempt, or registered as required by MCL 451.2301.

3. During the Relevant Period, BlockFi offered and sold securities in Michigan without being
   registered as a broker-dealer as required by MCL 451.2401.

4. CONCLUSIONS OF LAW

5. The BIAs are securities as defined in MCL 451.2102c(c).

6. During the Relevant Period, BlockFi's offer and sale of securities in Michigan that were
   not federal covered, exempt, or registered in Michigan violated MCL 451.2301.

7. During the Relevant Period, BlockFi's offer and sale of securities in Michigan without
   being registered as a broker-dealer violated MCL 451.2401.

8. During the Relevant Period, BlockFi's offer included a statement of material fact that was
   untrue or omitted a statement of material fact necessary to make the statement made not misleading in light of the circumstances under which it was made on its website concerning its collateral practices and, therefore, the risks associated with its lending activity.

9. The foregoing violations of MCL 451.2301 and MCL 451.2401 constitute the basis for the
   assessment of a civil fine against BlockFi pursuant to MCL 451.2604(4).

10. UNDERTAKING

11. BlockFi's parent, BlockFi Inc., undertakes and agrees to file with the Bureau an application
    for registration to offer and sell a new investment product, BlockFi Yield, which BlockFi Inc. intends to register under the federal Securities Act of 1933, as required for a registration by coordination under MCL 451.2303.

12. BlockFi and BlockFi's parent, BlockFi Inc., further undertake and agree to cease and desist
    offering or selling BIAs or any security that is not federal covered, exempt, or registered to new investors in the United States and cease and desist accepting further investments or funds in the BIAs by current U.S. investors unless and until the BIAs or other securities have been registered by the Bureau or are otherwise exempt.

13. BlockFi's parent, BlockFi Inc., undertakes and agrees to file with the Bureau for
    registration as a broker-dealer or engage a registered broker-dealer as required by MCL 451.2401 before offering or selling securities, unless otherwise exempt.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 7

1. BlockFi's parent, BlockFi Inc., undertakes and agrees to cease and desist making
   statements of material fact that are untrue or omitting to make statements of material fact necessary to make other statements made not misleading in light of the circumstances under which they were made.

2. BlockFi undertakes and agrees to pay a civil fine in the amount of $943,396.22 in
   installments described in this Consent Order.

3. ORDER
   On the basis of the Findings of Facts, Conclusions of Law, and BlockFi's consent to the entry of this Order. IT IS HEREBY ORDERED:

4. This Order concludes the investigation by the Bureau and resolves any other action the
   Bureau could commence against BlockFi and its affiliates concerning the Findings of Fact and Conclusions of Law, including as it relates to the offer and sale of BIAs without registration, qualification, or otherwise complying with an exemption and the above-referenced statements regarding BlockFi's collateral practices made thereto during the Relevant Period.

5. This Consent Order in Lieu of Cease and Desist Proceedings against BlockFi resolves the
   matter investigated by the Multistate Working Group as it relates to prior offers and sales of securities in Michigan.

6. This Order is entered into solely for the purpose of resolving the referenced multistate
   investigation and the Bureau and is not intended to be used for any other purpose. Other than the obligations and provisions set forth herein, this Order does not limit or create liability for BlockFi nor limit or create defenses for BlockFi to any claims.

7. This Order and the order of any other State in any proceeding related to BlockFi's
   agreement to resolve the above-referenced multistate investigation (collectively, the "Orders") shall not be used as sole grounds to deny registration or qualification of securities issued by BlockFi or its parent BlockFi Inc.

8. This Order is not intended to subject any Covered Person to any disqualifications under the
   laws of the United States, any state, the District of Columbia, Puerto Rico, or the U.S. Virgin Islands, or under the rules or regulations of any securities or commodities regulator or self- regulatory organization, including, without limitation, any disqualification from relying upon the state or federal registration exemptions or safe harbor provisions. "Covered Persons" means BlockFi, its parent, or any of its affiliates and their current or former officers, directors, employees, or other persons that could otherwise be disqualified as a result of the Orders.

9. This Order does not preclude BlockFi from paying interest or returns to existing clients,
   refunding principal to investors consistent with the terms of the BIAs, or otherwise lawfully dealing with existing clientele.

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1. BlockFi is hereby ORDERED to cease and desist from offering or selling the BIAs or any
   security that is not federal covered, exempt from registration, or registered to new investors in Michigan and to cease and desist accepting further investments or funds in the BIAs by current Michigan investors, unless and until the BIAs or other securities are federal covered, exempt from registration, or registered in Michigan.

2. BlockFi is hereby ORDERED to pay a civil fine in the amount of $943,396.22 to the
   Securities Investor Education and Training Fund.

3. Payment shall be made in the following installments:

4. $188,679.24 within 14 days of the entry of this Order;

5. $188,679.24 no later than August 15, 2022;

6. $188,679.24 no later than February 14, 2023;

7. $188,679.24 no later than August 14, 2023;

8. $188,679.26 no later than February 14, 2024.

9. If BlockFi fails to make any payment by the date agreed and/or in the amount agreed
   according to the schedule set forth above, all outstanding payments under this Order, including post-order interest, minus any payments made, shall become due and payable immediately at the discretion of the staff of the Bureau without further application to the Bureau.

10. Payment must be made pursuant to the Fine Payment Instruction forms that have been
    provided to BlockFi.

11. This Order shall be binding upon BlockFi, its parent and affiliates, and their respective
    successors and assigns with respect to the provisions above and all future obligations, responsibilities, undertakings, commitments, limitations, restrictions, events, and conditions.

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 9

CONSENT TO ENTRY OF ADMINISTRATIVE ORDER BY BLOCKFI

BlockFi hereby acknowledges that it has been served with a copy of this Order, has read the foregoing Order, is aware of its right to a hearing and appeal in this matter, and has waived the same. BlockFi admits the jurisdiction of the State of Michigan, Department of Licensing and Regulatory Affairs, Corporations, Securities, and Commercial Licensing Bureau; neither admits nor denies the Findings of Facts and Conclusions of Law contained in this Order; and, consents to entry of this Order by the Administrator as settlement of the issues contained in this Order. BlockFi agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal, or local tax for any civil fine that BlockFi shall pay pursuant to this Order. BlockFi states that no promise of any kind or nature whatsoever was made to it to induce it to enter into this Order and that it has entered into this Order voluntarily. ______________________ represents that s/he is __________________________ of BlockFi and Jonathan MayersGeneral Counsel that, as such, has been authorized by BlockFi to enter into this Order for and on behalf of BlockFi. Dated this ____ day of _______________, 2022. March4th BlockFi Lending LLC Mayers Jonathan Mayers p- DocuSigned by: By: __________________________ Title: ____________________________ General Counsel

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 10

CONSENT TO ENTRY OF ADMINISTRATIVE ORDER BY BLOCKFI INC.

BlockFi Inc., BlockFi Lending LLC's parent, hereby acknowledges that it has been served with a copy of this Order, has read the foregoing Order, is aware of its right to a hearing and appeal in this matter, and has waived the same. BlockFi Inc. admits the jurisdiction of the State of Michigan, Department of Licensing and Regulatory Affairs, Corporations, Securities, and Commercial Licensing Bureau; neither admits nor denies the Findings of Facts and Conclusions of Law contained in this Order; and, consents to entry of this Order by the Administrator as settlement of the issues contained in this Order. BlockFi Inc. unconditionally guarantees payment of the civil fine in the amount of Nine Hundred forty-three thousand three hundred ninety-six dollars and twenty-two cents ($943,396.22) as agreed in this Order. BlockFi Inc. agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any state, federal, or local tax for any civil fine that BlockFi Inc. shall pay pursuant to this Order. BlockFi Inc. states that no promise of any kind or nature whatsoever was made to it to induce it to consent to this Order and that it has consented to this Order voluntarily. ______________________ represents that s/he is __________________________ of BlockFi Inc. Jonathan Mayers General Counsel and that, as such, has been authorized by BlockFi Inc. to enter into this Order for and on behalf of BlockFi Inc. Dated this ____ day of _______________, 2022. March 4th BlockFi Inc. Jonathan By: ,- DocuSigned by: __________________________ Title: ADEC770BC65B4DB ____________________________ General Counsel

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 11

ORDER OF THE ADMINISTRATOR

The terms and conditions set forth in this Consent Order in Lieu of Cease and Desist Proceedings are ordered and final. _____________________________________ _______________ Linda Clegg Date Administrator and Director Corporations, Securities, and Commercial Licensing Bureau

BlockFi Lending LLC Consent Order (ENF-22-020040) Page 12 Linda Clegg3/4/2022Digitally signed by Linda Clegg

Date: 2022.03.04 13:54:00 -05'00'