In brief

  • A crypto company called DeFi Money Market raised $30 million in a sale of unregistered securities, per the SEC.
  • The SEC and the company agreed to a settlement, and two executives are being fined.

The Securities and Exchange Commission has announced charges against a crypto lending project and two of its executives over an unregistered securities offering.

According to a press release, DeFi Money Market raised over $30 million over the course of a year by selling two different kinds of Ethereum-based tokens: the first promised holders 6.25% interest, and the second was a so-called “governance token” (roughly analogous to voting shares in a traditional company).

When the company realized it wouldn’t be able to repay the token-holders, it intentionally misrepresented its investment strategy in an attempt to calm things down, the SEC alleged in its complaint.

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The SEC says both tokens—neither of which were formally registered—met the established definition of a security.

DeFi Money Market, which counted venture capitalist Tim Draper among its investors, was shut down this past February. As part of a settlement, the company has agreed to return $12,849,354; Gregory Keough, Derek Acree, the alleged architects of the scheme, were each fined $125,000. DeFi Money Market has already supplied funds for some token-holders to redeem their investments, according to the release.

Hester Peirce, an SEC commissioner with a reputation for leniency toward the crypto industry, called DeFi Money Market a “DINO” project—”Decentralized in Name Only”—playing off the RINO acronym that’s long been a favorite of the Republican Party’s truest believers.

That’s because DeFi Money Market’s business model wasn’t entirely controlled via code; it was the company and its executives managing investors’ money, rather than a system of smart contracts. Companies under the heading of DeFi, or “decentralized finance,” usually purport to eliminate the need for intermediaries like banks and investment managers.

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True DeFi projects are known for their extreme risks, and are even less strictly regulated than the rest of the crypto industry.

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