The Securities and Exchange Commission (SEC) has announced charges against DeFi lender Blockchain Credit Partners alleging the offering of unregistered securities raising $30 million. This is the first DeFi case filed by the SEC.
The complaint indicates that respondents have each submitted an Offer of Settlement which the Commission has determined to accept.
According to a complaint filed by the SEC, Blockchain Credit Partners (dba DeFi Money Market – DMM), a Cayman firm, along with Gregory Keough and Derek Acree, offered and sold securities in unregistered offerings through DMM from February 2020 to February 2021. The SEC states that smart contracts were used to sell two types of digital tokens: mTokens that could be purchased using specified digital assets and that paid 6.25 percent interest, and DMG “governance tokens” that reportedly gave holders certain voting rights, a share of profits, and the ability to profit from DMG governance token resales in the secondary market.
The complaint states that DMM would pay investors 6.25% interest on digital assets because it would use investor assets to buy “real world” assets, like car loans, that would generate sufficient income to pay the promised interest and generate surplus profits. The SEC claims that approximately $17.7 million in mTokens and more than $13.9 million in DMG tokens were sold to the public, including U.S. investors.
Additionally, the SEC adds that while the respondents controlled another company that owned car loans, DeFi Money Market never acquired an ownership interest in any of those loans. Instead, the SEC alleges that the respondents used personal funds and funds from the other company they controlled to make principal and interest payments for mToken redemptions.
The SEC states that based on facts and circumstances the tokens were securities.
The settlement includes the disgorgement of $12,849,354 and prejudgment interest of $258,052 to the SEC. Keough shall pay a civil money penalty in the amount of $125,000 and Acree shall pay a civil money penalty in the amount of $125,000.
Gurbir S. Grewal, Director of the SEC Enforcement Division, commented:
“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.”
Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, added:
“The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest 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.”