Rari Capital has settled charges by the Securities and Exchange Commission (SEC), which claims the firm engaged in unregistered crypto offerings, misleading investors and acting as an unregistered broker.
This is another victory in the SEC’s ongoing battle with digital asset firms and offerings that are deemed to violate securities law.
According to the SEC, Rari Capital, a DeFi protocol, and its co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, have settled the charges with the SEC. At one point, the SEC stated that they held over $1 billion in crypto.
According to the SEC’s complaint, Rari Capital offered two investment products, Earn pools and Fuse pools, which were said to function like crypto asset investment funds. These funds apparently allowed investors to deposit crypto assets in lending pools, either managed by Rari (Earn) or user-created (Fuse), and earn returns from their investments.
The SEC’s complaint alleges that investors in the pools received a token representing their interest in the pools and the right to receive profits earned by the pools.
Certain Earn pool investors also received a governance token, called the Rari Governance Token, or RGT.
The SEC alleges that by selling interests in these pools and RGT, Rari Capital conducted unregistered offers and sales of securities.
The SEC complaint also alleges that Rari Capital and its founders told investors that “Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate.”
The unregistered broker activity was allegedly conducted through the operation of their Fuse platform.
A separate order against Rari Capital Infrastructure, which took over Rari Capital, claims that the Fuse platform continued the offer and sale of Fuse pool interests as well as the performance of unregistered broker activities.
To settle the charges, the SEC reports that Rari Capital and its co-founders, without admitting or denying the SEC’s allegations, consented to the entry of final judgments ordering various forms of relief, including permanent injunctions, conduct-based injunctions, civil penalties, disgorgement with prejudgment interest, and equitable officer-and-director bars against the co-founders for a period of five years.
The settlements are subject to court approval.
The separate SEC order finds that Rari Capital Infrastructure violated the securities offering registration provisions of the Securities Act and the broker registration provisions of the Exchange Act. Without admitting or denying the SEC’s findings, Rari Capital Infrastructure agreed to the entry of a cease-and-desist order against it.
