The Securities and Exchange Commission (SEC) has charged a pair of men for their part in making millions off fraudulent offerings. The case has already been settled.
Two men from Florida were been brought up on charges by the SEC after using a Cayman Islands company to illegally obtain $30 million. The case was the first for the SEC in the DeFi sector.
In a press release from the SEC, the agency said the pair, Gregory Keough and Derek Acree, are executives at Blockchain Credit Partners. Charges stemmed from the two making misleading statements and selling $30 million in unregistered securities via smart contracts. Acree and Keough used the DeFi Money Market from February of 2020 until February 2021 to sell the securities. Two types of digital tokes were used in the operation, mTokens and DMG tokens. “mTokens that could be purchased using specified digital assets and that paid 6.25 percent interest, and DMG “governance tokens” that purportedly gave holders certain voting rights, a share of excess profits, and the ability to profit from DMG governance token resales in the secondary market,” the SEC stated.
The order goes on to explain that “the respondents stated that DeFi Money Market (DMM) could pay the interest and profits because it would use investor assets to buy “real world” assets that generated income, like car loans.” After publicly unveiling DMM, the pair realized it could not operate as promised because the volatility of prices created a risk that income would not cover the principal investment. Problems arose when the pair decided to omit this information from correspondence with investors, but also lied about how the company was operating. To try and cover their tracks, Acree and Keough used a separate company along with private funds to try and make interest payments for mToken redemptions.
Reaction from the SEC
The announcement from the SEC includes quotes from numerous individuals including Chief of the Enforcement Division’s Complex Financial Instruments Unit, Daniel Michael. “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.”
Gurbir S. Grewal, Director of the SEC Enforcement Division added that “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.”
The press release concludes by sharing the case has been settled by the accused “without admitting or denying the findings in the SEC’s order.” The pair consented to a cease-and-desist order that includes penalties of $125,000 each and repayment of ill-gotten gains totaling almost $13 million between the two.
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