Linus Financial reaches a settlement with the U.S. Securities and Exchange Commission (SEC) without going through a court trial. Learn more about the details of this settlement and its impact in the financial industry.
Linus Financial: Settling SEC Dispute Out of Court
Linus Financial, a crypto platform based in Nashville, has reached a settlement with the Securities and Exchange Commission (SEC) outside of court. The company had previously offered pooled crypto investment opportunities to its users in exchange for fiat currency.
Unregistered Securities Offering
The SEC has been recently focusing on lawsuits related to the sale of tokens that may be classified as securities. However, in the case of Linus Financial, the point of contention was the interest-garnering accounts themselves.
According to a press release from the SEC, the Linus Interest Accounts were considered to be securities and did not qualify for an exemption from SEC registration.
In order for a financial product to be classified as a security, it must meet the requirements of the Howey Test. This test determines if the product is a financial investment with a reasonable expectation of profit derived from the efforts of others. Since Linus Financial’s users only needed to purchase an investment account to benefit from the firm’s trading services, the SEC ruled that these accounts qualified as securities.
No Penalties Due to Cooperation
Fortunately, Linus Financial will not face any penalties for the unregistered offering. The SEC has agreed to suspend penalties in exchange for a cease-and-desist order signed by the crypto platform.
Stacey Bogert, the Associate Director of the SEC’s Enforcement Division, stated that this course of action should encourage other firms in the industry to cooperate when necessary.
“The SEC will continue to hold companies accountable for failing to comply with federal securities laws. But we also want to encourage companies to cooperate and take prompt corrective action when problems arise. Today’s settlement provides a valuable message to other market participants about the importance of cooperation and remediation.”
Linus Financial had been offering these accounts since March 2020 but decided to wind down its operations in late March 2022. This decision came shortly after the SEC announced charges against a crypto asset investment product similar to the one provided by Linus Financial.
During this time, Linus voluntarily suspended the sale of accounts to new users and advised existing users to wind down and close their accounts within a month.