The Securities and Exchange Commission (SEC) has charged two men for their roles in making millions of dollars through fraudulent offerings. The matter has already been resolved.
The Securities and Exchange Commission (SEC) has charged two men with defrauding investors of millions of dollars through fraudulent offerings. The SEC charged two men from Florida with illegally obtaining $30 million through the use of a Cayman Islands company. The SEC’s first case in the Defi sector.
The SEC stated in a press release that Gregory Keough and Derek Acree are executives at Blockchain Credit Partners. The two were charged with making false statements and using smart contracts to sell $30 million in unregistered securities. Between February 2020 and February 2021, Acree and Keough sold the securities through the Defi Money Market. The operation utilized two distinct types of digital tokens: mTokens and DMG tokens. “mTokens that could be purchased with specified digital assets and paid a 6.25 percent interest rate, and DMG “governance tokens” that purported to provide holders with 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 continues, “the respondents stated that Defi Money Market (DMM) could pay interest and profits because it would use investor assets to purchase “real world” income-generating assets, such as car loans.” After publicly announcing DMM, the pair realized it could not operate as promised due to the risk that income would not cover the principal investment due to price volatility. The pair ran into trouble when they not only omitted this information from investor correspondence but also lied about how the company was operating. Acree and Keough attempted to conceal their activities by using a separate company and private funds to make interest payments on mToken redemptions.
The SEC’s Reaction
The SEC announcement includes quotes from a number of individuals, including Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit. “The federal securities laws apply equally to centuries-old frauds disguised in cutting-edge technology. The fact that the offering was decentralized and the securities were labeled as governance tokens did not prevent us from ensuring that Defi Money Market was shut down immediately and investors were compensated.”
Gurbir S. Grewal, Director of the SEC Enforcement Division, added, “Full and honest disclosure remains a pillar of our securities laws – regardless of the technologies used to offer and sell those securities.” This enables investors to make informed decisions and prevents issuers from misrepresenting their business operations to the public.”
The press release concludes by noting that the case has been settled “without the accused admitting or denying the SEC’s findings.” The pair agreed to a cease-and-desist order that includes a $125,000 penalty for each party and repayment of ill-gotten gains totaling nearly $13 million.
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