SEC Busts DeFi Firm for Illegally Raising $30 Million

The US Securities and Exchange Commission (SEC) has charged two Florida men and their Cayman Islands-registered firm for selling more than $30 million worth of unregistered securities on decentralized finance (DeFi) platform.

Friday’s press release further elaborated that two defendents, Gregory Keough and Derek Acree, also misled investors with falsified reports of operations and profitability.

According to the SEC, the two and their company Blockchain Credit Partners offered and sold unregistered securities through their DeFi platform called DeFi Money Market (DMM). The operations ran between February 2020 and February 2021, while the company offered two types of tokens: mTokens and DMG. The first token paid holders an interest of 6.65 percent, while the other one was a governance token of the blockchain network. 

The company told investors that it is going to invest the proceeds in real-world assets to generate income and pay the interest on the tokens.

However, the price volatility of the digital assets used to purchase the DMM tokens barred the company from generating a sustainable income. Rather than notifying the roadblock, the two started to show fake investments to the investors.

Several Violations

The SEC finds that the mToken falls under the category of the notes and the DMG governance tokens were sold as investment contracts. The agency brought charges of multiple violations of the Securities Act against the two and their company, along with charges of violating the anti-fraud provisions.

Both Keough and Acree have consented to the regulator’s cease and desist order but did not accept or deny the charges. They will now have to disgorge almost $12.85 million, and each of them has to pay an additional penalty of $125,000.

“The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest technology,” Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a statement. They also funded the smart contracts, allowing mToken investors to receive their principle and owed interest.

“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.”