No Moons For Traders As DeFi Company “DMM DAO” Is Shut Down By SEC

The operators of DeFi Money Market (DMM) have consented to a cease and desist order by the US Securities and Exchange Commission (SEC). They were charged by the SEC for misleading investors and also issuing US$30 million worth of unregistered securities through the decentralised platform. This is the first time the SEC has charged an entity for securities fraud involving DeFi technology. 

DMM Execs Sold $30 Million in Unregistered Securities

The two DMM executives – Gregory Keough and Derek Acree – and their company Blockchain Credit Partners were alleged to have misled investors about the operations and profitability of DeFi Money Market. 

Between February 2020 and February 2021, the three entities sold about US$30 million worth of unregistered securities to investors. Using smart contract technology, they issued the so-called mTokens and DMG tokens, which also served as the governance token of the protocol. 

The executives claimed they would use investors’ assets exchanged for mTokens to invest in real-world assets such as car loans. As such, the investors were promised a 6.25 percent return on their assets. However, DMM couldn’t deliver on this promise due to the volatility of the digital assets exchanged for the DMM tokens.

The price volatility of the digital assets used to purchase the tokens created risk that the income [raised] through income-generating assets would be insufficient to cover appreciation of investors’ principal.

SEC statement

SEC Orders DMM Executives to Disgorge Over $12 Million

Besides presenting false “car loans” to the investors, the DMM execs used their personal funds and those of Blockchain Credit Partners to pay interest to the investors. 

Full and honest disclosure remains the cornerstone of our securities laws – no matter what technologies are used to offer and sell those securities. This allows investors to make informed decisions and prevents issuers from misleading the public about business operations.

Gurbir S. Grewal, director, SEC enforcement division 

Without admitting or denying the SEC’s order, the execs agreed to cease and desist from continuing DMM business. Although DMM investors can redeem their mTokens, the SEC also ordered Keough and Acree to disgorge US$12,849,354 and imposed penalties of US$125,000 each. 

The DeFi industry has had little or no regulatory attention until now. However, over recent days, people have assumed it would come following recent changes and frequent cases of rugpulls. As recently as June 21, billionaire Mark Cuban called for the regulation of the DeFi space following the crash of the TITAN token.