SEC Charges Crypto Executives Over Allegedly Fraudulent $ 30 Million Bids In First Case Against This Booming $ 100 Billion Space
After warning this week of increased regulatory oversight ahead, the Securities and Exchange Commission on Friday imposed its first charges in the burgeoning decentralized financial space, accusing two Florida men and their Cayman Islands company of allegedly sold over $ 30 million worth of securities to investors in unregistered offerings over the course of a year.
The agency alleges that between February 2020 and February 2021, two executives of Blockchain Credit Partners used smart contracts on the Ethereum blockchain to sell two types of cryptocurrency while deceiving investors about their company’s operations and profitability. .
According to Friday’s order, the company allowed investors to buy one of the cryptocurrencies using popular digital assets like Ether and promised to pay holders nearly 6.3% interest, claiming that investor funds would be used to buy “real world” assets, such as car loans, which generated income.
Instead, the SEC claims it was impossible for the company to operate as promised because real-world assets could not generate enough income to repay the growing value of investments made in tokens like Ether.
The executives did not notify investors of the roadblock, the SEC alleges, and instead used personal funds and funds from another company they controlled to make principal and interest payments to investors.
Blockchain Credit partners and executives Gregory Keough and Derek Acree neither admitted nor denied the SEC findings, but agreed to repay more than $ 12.8 million in refunds and penalties of $ 125,000 each. .
“Federal securities laws apply with equal force to centuries-old frauds shrouded in today’s latest technology,” said Daniel Michael, unit head of the SEC’s enforcement division on Friday. . “Here, qualifying the offer as decentralized and the securities of governance tokens did not prevent us from ensuring that [the lending marketplace] was immediately closed and the investors were reimbursed.
Just days before the charges, SEC Chairman Gary Gensler said burgeoning decentralized financial platforms, also known as DeFi, were one facet of the crypto industry. – currency that deserved further government scrutiny. The platforms largely bypass traditional intermediaries like central banks and financial services exchanges and instead rely on blockchains – and often their own cryptocurrencies – to process transactions. On Tuesday, Gensler said on Tuesday that such practices may involve not only securities laws, but also commodity and banking laws. “Make no mistake: as long as there are securities on these trading platforms, under our laws they must register with the Commission unless they meet an exemption,” he said. he cautioned, adding, “Make no mistake: if a lending platform offers securities, it also falls under the jurisdiction of the SEC.” Meanwhile, institutional investors have become widely familiar with the space: Goldman Sachs filed last week to create its own exchange-traded fund investing in DeFi.
101 billion dollars. This is DeFi’s current market value, according to crypto-data website CoinGecko. The space first passed a valuation of $ 100 billion and peaked at around $ 150 billion in May before the larger crypto market collapsed by nearly 50%.
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