A Cayman Islands-based company and two individuals may be the first
subjects in decentralized finance, or DeFi, to face enforcement action
from the United States Securities and Exchange.
According to a Friday announcement, the Securities and Exchange Commission, or SEC, said that
this is the first case involving securities using DeFi technology which
resulted in an enforcement action. The agency said it charged the
company Blockchain Credit Partners as well as Florida residents Gregory
Keough and Derek Acree, alleging they were involved in offering and
selling more than $30 million in unregistered securities from February
2020 to February 2021.
DeFi Money Market, according
to the project’s white paper, was “a permissionless and fully
decentralized protocol to earn interest on any Ethereum digital asset
backed by real-world assets represented on-chain.” Billionaire Tim Draper also backed the project.
The
SEC claimed that Keough and Acree misrepresented how the company was
operating to investors and did not reveal that it would be unlikely to
pay interest and profits from offering and selling mTokens as well as
DeFi Money Market’s DMG governance tokens. Instead of purchasing car
loans, as the project claimed, the SEC alleged the pair used personal
funds as well as funds from Blockchain Credit Partners to make interest
payments for mToken redemptions.
However, the DeFi project closed its doors in February,
saying at the time it was the “result of regulatory inquiries.” The
announcement led to a huge price drop in DMG, making it more unlikely
that investors would be able to redeem their tokens.
Related: SEC enforcement actions cost crypto firms and individuals $1.7B in penalties
“The
federal securities laws apply with equal force to age-old frauds
wrapped in today’s latest technology,” said Daniel Michael, chief of the
SEC Enforcement Division’s Complex Financial Instruments Unit. “The
labeling of the offering as decentralized and the securities as
governance tokens did not hinder us from ensuring that DeFi Money Market
was immediately shut down and that investors were paid back.”
The
SEC said that Keough and Acree have agreed to a cease-and-desist order
regarding their company’s token offerings that included more than $12.8
million in disgorgement as well as $125,000 penalties each. The pair
have funded DeFi Money Market smart contracts to allow token holders to
receive any funds due.
At the time of publication, the DMG governance token has a market capitalization of more than $2.3 million, according to data from CoinMarketCap
source link: https://cointelegraph.com/news/sec-claims-first-enforcement-action-in-30m-fraud-case-involving-defi-project
"The labeling of the offering as decentralized and the securities as
governance tokens did not hinder us from ensuring that DeFi Money Market
was immediately shut down and that investors were paid back," said the
SEC.
