In a groundbreaking development, the U.S. Securities and Exchange Commission (SEC) has unveiled a $1.7 million deal with a purportedly decentralized autonomous organization (DAO) and its founders. The agreement aims to quell allegations of peddling unregistered crypto asset securities named SMART Yield bonds.
Cease and Desist Orders Unveiled
On Friday, the SEC unleashed dual cease and desist orders, one against the enigmatic BarnBridge DAO and the other targeting its trailblazing founders, Tyler Ward and Troy Murray.
SEC Reaches $1.7M Deal With Purported DAO : Unveiling the Deal
Though neither BarnBridge, Ward, nor Murray have conceded or repudiated the SEC’s assertions, BarnBridge has committed to a hefty $1.5 million disgorgement. Simultaneously, the founders individually consented to a $125,000 civil penalty, as detailed by the SEC.
The BarnBridge Blueprint
BarnBridge, a blockchain-enabled enterprise crafted to vend structured investments in pooled crypto asset vehicles, made its debut in August 2020. The SEC alleges that from March 2021 to May 2023, BarnBridge DAO orchestrated the offering and sale of SMART Yield bonds via unregistered transactions.
SEC Reaches $1.7M Deal With Purported DAO : SMART Yield Unveiled
Intricately, the DAO tantalized investors with variable and fixed-rate returns, enticing them into the world of SMART Yield. The SEC claims that Ward and Murray actively marketed the bonds and their purported investment prowess through decentralized finance-related social media channels. Additionally, the duo authored a white paper expounding the intricacies of SMART Yield.
Unmasking the SMART Yield Bonds
Describing SMART Yield bonds as a fixed-income product, the white paper beckoned investors to delve into senior (guaranteed return) or junior (variable return) tranches of SMART Yield investment pools. The SEC contends that investor assets in these pools were bartered for crypto assets from third-party lending platforms, generating interest income.
Raising the Stakes
If a pool failed to meet the guaranteed return for senior investors, SMART Yield allegedly steered the capital of junior investors to cover the shortfall. Meanwhile, junior investors reaped the benefits when excess returns exceeded the fixed amounts owed to senior investors.
SEC Reaches $1.7M Deal With Purported DAO : The Whopping Investment
Over the period from March 2021 to May 2023, the SEC asserts that SMART Yield pools absorbed more than $509 million in crypto assets. Astonishingly, none of these bonds were registered or qualified for exemption with the SEC.
Legal Allegations
Furthermore, the SEC contends that BarnBridge and its founders breached the Investment Company Act of 1940. Allegedly, they offered and sold investments in multiple SMART Yield pools without obtaining the necessary registration with the commission.
SEC Reaches $1.7M Deal With Purported DAO : SEC’s Verdict
Gurbir Grewal, Director of the SEC’s Division of Enforcement, issued a stern warning, stating, “The use of blockchain technology for the unregistered offer and sale of structured finance products to retail investors runs afoul of the securities laws.” He emphasized that these laws are universally applicable, irrespective of claims of incorporation, decentralization, or autonomy.
Defendant’s Perspective
In response, Douglas Park of Park Legal PC, counsel for the defendants, conveyed that while his clients regret the situation’s outcome, they comprehend the SEC’s stance. In the best interest of all parties, they opted for an amicable settlement.
Denouement
This legal showdown, pulsating with the allure of decentralized finance and crypto intrigue, underscores the SEC’s unwavering commitment to regulating emerging financial landscapes.
