SEC Claims Action In $30M Fraud Case Including DeFi Project

The SEC said, “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.”

A company based in the Cayman Islands and two people may become the first subjects in decentralized financial or DeFi to face enforcement action from the United States Securities and Exchange. According to a statement issued on Friday, the U.S. SEC stated that this is the first case in which securities using DeFi technology have led to enforcement actions. SEC stated that they have charged Florida residents. The names of the residents are Gregory Keough and Derek Acree. SEC has also charged the company Blockchain Credit Partners.

The agency claimed that both of them and the company participated in offering and selling more than $30 million in unreported securities. This happened between February 2020 and February 2021. According to the official project document, DeFi Money Market is “a permissionless and fully decentralized protocol to earn interest on any Ethereum digital asset backed by real-world assets represented on-chain.” Moreover, the billionaire Tim Draper also supports the project.

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The US Securities and Exchange Commission stated that Keough and Acree provided investors with false information about the company’s operations. They also failed to disclose that they were unlikely to pay interest and profits from the sale and offerings of mToken and DMG governance tokens from the DeFi Money Market. The bill stated that instead of buying the car loans, the SEC claims that both used personal funds and Blockchain Credit Partners funds. They used them to pay the interest on the mToken redemptions. However, the DeFi project closed in February. It claimed at the time that it was the “result of regulatory inquiries”. After this announcement, the price of DMG saw a huge price drop. Thus, this resulted in reducing the possibility of investors redeeming their tokens anymore.

Daniel Michael is the chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. He said, “The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest technology. 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.”

Also, the US SEC stated that the pair agreed to sign an order to suspend their company’s token offerings. This included more than $12.8 million of disgorgement and a fine of $125,000 per person. Both of them funded the DeFi Money Market smart contract. They did this in order to allow all the token holders to receive all the payments that the company owed. According to CoinMarketCap, the market value of DMG governance tokens at the time of release exceeded $2.3 million.

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