Iowa will receive about $943,000 as part of a settlement with the cryptocurrency financial institution BlockFi.

Iowa Insurance Division Commissioner Doug Ommen, whose agency regulates securities in the state, said in a news release this week that the company failed to properly register a financial product known as BlockFi Interest Accounts. Investors deposited cryptocurrencies like Bitcoin and Ethereum into the accounts, with the company paying a percentage back every month.

BlockFi advertised monthly interest rates of up to 9.25%, depending on the volume and type of cryptocurrency an investor deposited. According to the U.S. Securities and Exchange Commission, BlockFi needed to register the product as a security, a step the New Jersey-based company failed to take.

The Iowa Insurance Division pursued legal action against BlockFi as part of a group that included SEC regulators and 31 other state agencies. BlockFi agreed in February to pay a total of $100 million, stop offering BlockFi Interest Accounts in the United States and stop accepting additional deposits from U.S. customers to accounts that already were open.

BlockFi signed a consent order with the Iowa Insurance Division on June 8, agreeing to pay a $943,000 fine in five installments through February 2024.

“While innovations, like cryptocurrencies, may provide for growth and evolution in the financial system, it is important that regulators ensure this occurs within an appropriate framework that protects investors while still facilitating responsible capital formation,” Ommen said in a statement.

When BlockFi reached a settlement with the SEC in February, company CEO Zac Prince announced a new product, BlockFi Yield, which would be a registered security.

"We have always known that strong engagement with regulators would be critical for the adoption of financial services powered by cryptocurrencies," Prince said in a statement at the time.

BlockFi's consent order with the Iowa Insurance Division came just before the company announced Monday that it is laying off 20% of its 850 employees, joining other crypto firms that are shedding staff amid a market downturn. Bitcoin has dropped in value by about 28% over the last week. Ethereum has dropped by about 37%.

Prince said in a Twitter thread that the company needed to lay off staff because of a "dramatic shift in macroeconomic conditions," according to CNBC.

BlockFi rapidly grew during the pandemic. According to the consent order, Iowans had steered about $268,000 worth of assets into the BlockFi Interest Accounts as of the end of 2019. By the end of 2021, that figure was up to $14.7 million.

In addition to failing to register the product as a security, BlockFi misled investors about how secure their money was, Iowa's regulators wrote in the consent order.

BlockFi earned money by lending cryptocurrencies to institutional investors. According to the consent order, BlockFi representatives wrote on the company website that those loans were "typically" overcollateralized, meaning the company had more than enough assets available to pay retail investors should BlockFi's debtors fail to pay.

According to the consent order, BlockFi employees thought that institutional investors would be willing to provide security on the loans, meaning they would guarantee other assets to BlockFi if they couldn't pay their loans.

"But it quickly became apparent that large intuitional investors were frequently not willing to post large amounts of collateral to secure their loans," the consent order between Iowa regulators and BlockFi representatives says.

About 24% of loans were overcollateralized in 2019, according to the order. About 16% were overcollateralized in 2020.

"(BlockFi Interest Accounts) investors did not have complete and accurate information with which to evaluate the risk that ... BlockFi would be unable to comply with its obligation to pay," the consent order says.

Of the fine that the company will pay to the Iowa Insurance Division, about $189,000 will go to the agency's enforcement fund. Another $754,000 will go to the Iowa Securities Investor Education and Financial Literacy Training Fund, which supports middle school and high school programs.

Tyler Jett covers jobs and the economy for the Des Moines Register. Reach him at tjett@registermedia.com, 515-284-8215, or on Twitter at @LetsJett.

This article originally appeared on Des Moines Register: SEC settlement with crypto firm BlockFi to provide Iowa $943,000