In an action that could be seen as the first against decentralized finance (DeFi) space, the U.S. Security and Exchange Commission has charged a DeFi platform with its executives for misleading investors and selling unregistered securities of more than $30 million, according to an announcement.
Per the announcement, the regulator charged Gregory Keough and Derek Acree, identified as the executives of Blockchain Credit Partners, a Cayman Islands company, for unregistered securities sales worth over $30 million. The regulator also charged the pair and their company for misleading investors concerning the business operations and profitability.
The duo sold two tokens, such as mToken and DMG tokens, using Smart Contracts and DeFi technology. mToken promises 6.25 percent interest to its holders while the second enfranchises holders shares excess profit “and the ability to profit from DMG governance token resales in the secondary market.”
SEC said the pair invested investors’ funds in DeFi Money Markets, claiming it could pay profits and interest by its real-world investments that generate huge income. After their investment, price volatility put investors’ funds at risk, and investors were not informed.
Also, it “misrepresented how the company was operating, including by falsely claiming that Defi Money Market had bought car loans that they displayed on Defi Money Market’s website.”
It added that they “used personal funds and funds from the other company they controlled to make principal and interest payments for token redemptions.”
The respondents didn’t admit or deny the findings, as they both consented to a cease-and-desist order that includes penalties of $125,000 and repayment of $12,849,345 each.
According to the commission, the defendants have funded the smart contracts so that token holders could redeem their tokens and receive all principal and interest owed.