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A Cayman Islands-based company and two people may be the first decentralized finance, or DeFi, subjects to face enforcement action from the United States Securities and Exchange.
According to an announcement on Friday, the Securities and Exchange Commission, or SEC, said this was the first case involving securities using DeFi technology that resulted in enforcement action. The agency said it indicted Blockchain Credit Partners as well as Florida residents Gregory Keough and Derek Acree, alleging they were involved in the February offering and sale of more than $ 30 million in unregistered securities. 2020 to February 2021.
DeFi Money Market, according to the project’s white paper, was “an unauthorized, fully decentralized protocol for earning interest on any Ethereum digital asset backed by real-world assets represented on the chain.” Billionaire Tim Draper also backed the project.
The SEC claimed that Keough and Acree misrepresented the way the company works with investors and did not disclose that it would be unlikely that he would pay interest and profit by offering and selling mTokens as well as tokens. of DMG governance of DeFi Money Market. Instead of buying auto loans, as the draft claimed, the SEC alleged that the couple used personal funds as well as funds from Blockchain Credit Partners to make interest payments for mToken buyouts.
However, the DeFi project closed in February, claiming at the time that it was the “result of regulatory investigations.” The announcement led to a huge drop in the price of DMG, making it more unlikely that investors would be able to redeem their tokens.
Related: SEC enforcement actions cost crypto firms and individuals $ 1.7 billion in penalties
“Federal securities laws apply with equal force to centuries-old frauds shrouded in today’s latest technology,” said Daniel Michael, head of the complex financial instruments unit of the company’s division. SEC enforcement. “Labeling the offering as decentralized and the securities as governance tokens did not prevent us from ensuring that DeFi Money Market was immediately closed and investors were reimbursed.”
The SEC said Keough and Acree agreed to a cease and desist order over their company’s token offers that included more than $ 12.8 million in restitution as well as $ 125,000 in penalties each. The pair funded DeFi Money Market smart contracts to allow token holders to receive all funds owed.
At the time of publication, the DMG governance token has a market cap of over $ 2.3 million, according to data from CoinMarketCap.
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