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DeFi Lender Platform Settles With SEC Order After Raising $30 Million in ‘Fraudulent’ Offerings

DeFi Lender Platform Settles With SEC Order After Raising $30 Million in ‘Fraudulent’ Offerings

Blockchain Credit Partners (BCP), a firm that has been offering unregistered sales of over $30 million worth of securities using smart contracts and “DeFi” (decentralized finance) technology, has settled over $12 million worth of disgorgement after consenting to a cease-and-desist order from the U.S. Securities and Exchange Commission.

According to an official press release issued by the SEC today, executives of the firm made unregistered offerings through DeFi Money Market (DMM), a now-defunct protocol which once offered the “mToken” and DMG tokens. The executives were identified as Gregory Keough and Derek Acree, with the SEC order finding that the two used smart contracts to sell both mTokens and DMG governance tokens.

The sale period lasted between February 2020 to February 2021, and attracted investors with features such as 6.25% interest rates, excess profit sharing, as well as arbitrage earnings from resales in secondary markets.

The SEC order states that the now defunct firm offered and sold mTokens and DMG governance tokens without proper disclosures on its forward-looking statements, such that the digital assets were sold and offered despite price volatility, growing the risk of imbalance between its actual generated income and the amount of appreciation to be covered for investors’ principal.

The regulatory agency explains that its order found that the respondents (BCP & DMM) misrepresented how it operated through false claims on car loans to validate its financial status, details of which were posted on the now defunct DMM website. While the principal and interest payments for mToken redemptions were actually fulfilled, the source of funding for these were different from what the respondents claimed to be the actual source of funding, said the SEC.

“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.” explained Gurbir Grewal, Director of the SEC’s Enforcement Division.

The DMM’s decentralized autonomous organization (DAO) was officially handed a cease-and-desist order earlier this year on February 5, after having received an investigative subpoena from the SEC on December 15, 2020. Prior to its closure, the investment platform was backed by Tim Draper.

“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.” said Daniel Michael, who heads the SEC Enforcement Division’s Complex Financial Instruments Unit.

According to the SEC press release, the respondents have consented to the order which includes disgorgement totaling to $12,849,354, with penalties of $125,000 each for the executives (Keough and Acree) identified as involved. Proper to the order, the platform has redistributed and refunded its token investors by funding the smart contracts, letting them redeem mTokens to receive all the amounts they were owed for principal and interest.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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