The U.S. Securities and Exchange Commission has taken its first enforcement action regarding decentralized finance (defi). The commission has charged a defi platform and its executives for unregistered securities sales of more than $30 million and misleading investors.
SEC’s First Enforcement Action in Decentralized Finance
The SEC announced Friday it had taken its first enforcement action regarding decentralized finance (defi). This case concerns “securities using the defi technology
The regulator charged two Florida men — Gregory Keough and Derek Acree — and their Cayman Islands company, Blockchain Credit Partners, for “unregistered sales of more than $30 million of securities.” The three were also charged “for misleading investors concerning the operations and profitability of their business Defi Money Market.”
They used smart contracts to sell DMM governance tokens (DMG) and mtokens. The first promised 6. 25% interest while the latter purportedly “gave holders certain voting rights, a share of excess profits, and the ability to profit from DMG governance token resales in the secondary market.”
The SEC explained that they offered and sold the tokens to claim that “Defi Money Market” could pay the interest, profits, and that it would use investor assets for real world assets that generate income like car loans .”
They did not inform investors when they realized that the price volatility of digital assets used for purchasing the tokens was creating risk that the income from income-generating assets would not be sufficient to compensate appreciation of investors’ principal. They instead “misrepresented the company’s operations, including falsely claiming that Defi Money Market had purchased car loans, which they displayed on Defi Money Market’s website .”
The SEC noted that the defendants “used personal funds and funds from the other company they controlled to make principal and interest payments for mtoken redemptions.”
Daniel Michael is the chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. He commented that “Here, we did not hesitate to ensure that Defi Money Market was promptly shut down and that investors were repaid back.”
Without admitting or denying the findings in the SEC’s order, respondents consented to a cease-and-desist order that includes disgorgement totaling $12,849,354 and penalties of $125,000 each for Keough and Acree.
According to the commission, defendants funded smart contracts so that token holders could redeem their tokens for principal and interest.
What do you think about the SEC going after decentralized finance platforms? Comment below.
This story contains tags
decentralized finance, defi bust, defi executives, defi platform, SEC, sec action against defi, sec closed down defi, sec defi, sec defi bust, sec enforcement action, sec shuts down defi, sec takes action against defi
Image Credits: Shutterstock, Pixabay, Wiki Commons
Read More