The U.S. Securities and Exchange Commission (SEC) is pressing charges against two crypto executives in its first-ever decentralized finance (DeFi) securities case.
In a new press release, the SEC says that it charged two Florida men and their Cayman Islands company for unregistered sales of more than $30 million in securities using smart contracts and DeFi technology.
The SEC also claims Gregory Keough, Derek Acree and their DeFi lending company, Blockchain Credit Partners, misled investors about the operations and profitability of their business DeFi Money Market.
The two men allegedly sold two different types of digital tokens, which included mTokens that paid 6.25% interest and DMG governance tokens that were said to give holders rights to vote and share excess profits.
Keough and Acree allegedly claimed that DeFi Money Market could pay interest and profits by using investor assets to buy real-world assets that generated income, such as car loans. The SEC, however, says that the price volatility of the digital assets used to buy the tokens was too high, presenting a significant roadblock to Keough and Acree’s ability to pay for the appreciation they promised with each token.
Instead of notifying their investors, the two men allegedly claimed that DeFi Money Market had purchased car loans and allegedly used personal funds as well as funds from another company to pay off mToken redemptions.
Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, says that federal securities laws “apply with equal force” to frauds involving modern technology.
“Here, 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 says that both the mTokens and the DMG governance tokens were sold as unregistered investment contracts. The case represents the SEC’s first involving securities and DeFi technology.
Keough and Acree consented to a cease-and-desist order from the SEC that includes a nearly $12.85-million disgorgement and penalties of $125,000 each. The men did not admit or deny the findings in the SEC’s order.
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