“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,” stated the SEC.
Securities and Exchange Commission may take enforcement action against a Cayman Islands-based corporation and two individuals in the field of decentralised finance, or DeFi.
The Commission said in a Friday release that this is the first case involving securities using DeFi technology that has resulted in an enforcement action. The SEC sued the company Blockchain Credit Partners, as well as Florida citizens Gregory Keough and Derek Acree, for offering and selling more than $30 million in unregistered securities between February 2020 and February 2021.
According to the project’s whitepaper, DeFi Money Market is a “a permissionless and fully decentralized protocol to earn interest on any Ethereum digital asset backed by real-world assets represented on-chain.” The initiative was also supported by billionaire Tim Draper.
The SEC claimed that Keough and Acree misrepresented the business’s operations to investors and failed to disclose that the company would be unlikely to pay interest or earnings from the sale of mTokens as well as DeFi Money Market’s DMG governance tokens.
Instead of obtaining auto loans, as represented by the initiative, the SEC claimed the couple utilised personal cash as well as monies from Blockchain Credit Partners to make interest payments on mToken redemptions.
The DeFi project, on the other hand, shut down in February, citing “regulatory inquiries” at the time. The announcement caused a significant decline in the price of DMG, increasing the likelihood that investors would be able to redeem their tokens.
“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 fact that the offering was labelled as decentralised and the securities as governance tokens did not prevent us from ensuring that DeFi Money Market was shut down immediately and that investors were paid back.”
As stated to the SEC, Keough and Acree agreed to a cease-and-desist order addressing their company’s token offers, which included more than $12.8 million in disgorgement and $125,000 in penalties each. The couple has sponsored DeFi Money Market smart contracts, which will let token holders to receive any monies owed to them.
According to CoinMarketCap data at the time of publication, the DMG governance token has a market capitalization of more than $2.3 million.