The U.S. Securities and Exchange Commission (SEC) filed a complaint against Blockchain Credit Partners doing business as DeFi Money Market and its co-founders Gregory Keough and Derek Acree for allegedly engaging in a fraudulent offering of digital tokens.
De-Fi Money Market sold mTokens that paid 6.25% interest. It also DMG tokens that purportedly provide holders certain voting rights and a share of excess profits, and the ability to gain from the resale of DMG tokens in the secondary market.
SEC allegations against DeFi Money Market, Keough, and Acree
In the SEC Order on Friday, the federal securities regulator found that DeFi Money Market, Keough, and Acree fraudulently raised more than $30 million from selling unregistered mTokens and DMG tokens using smart contracts and decentralized finance (De-Fi) technology.
From February 2020 to February 2021, the respondents sold approximately $17.7 million in mTokens and over $13.9 million in DMG tokens to investors. The offerings were not registered with the SEC.
The SEC also found that the respondents falsely claimed that DeFi Money Market could pay interest and profits to the holders of its digital tokens. They also falsely claimed that the company would use investors’ funds to purchase income-generating “real world” assets like car loans.
However, DeFi Money Market did not operate as promised to the holders of mTokens and DMG tokens. They failed to take into consideration the price volatility of the digital assets. Therefore, the company faced a significant risk that the income the real-world assets would generate is not sufficient to cover appreciation of investors’ principal.
Instead of informing investors about the problem, the respondents misrepresented how the company operates.
On February 5, 2021, the respondents announced their decision to shut down the operations of DeFi Money Market and voluntarily stopped offering and selling mTokens. The announcement resulted in a significant decline in the value of DMG tokens in the secondary market.
The respondents took steps to returns and/or preserve De-Fi Money Market’s assets for the benefit of the investors of mTokens and DMG tokens. Keough and Acree provided sufficient funds from their personal accounts to pay investors’ principal and interests that they owed.
The SEC ordered the respondents to pay disgorgement totaling $12,849,354. The Commission also ordered Keough and Acree to pay penalties of $125,000 each.
They also agreed to the order requiring them to stop violating Sections 5(a) and 5(c) of the Securities Act of 1933 and the anti-fraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
De-Fi Money Market, Keough, and Acree consented to the SEC Order without admitting or denying its findings.
In a statement, the SEC Division of Enforcement, Complex Financial Instruments Unit Chief Daniel Michael said, “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.”
Have a story you want USA Herald to cover? Submit a tip here and if we think it’s newsworthy, we’ll follow up on it.