The Securities and Exchange Commission(SEC) charged a Florida duo operating a Cayman Islands company with more than $30 million for unregistered securities sales. The case is the agency’s first involving securities using DeFi technology, according to the SEC.
Gregory Keough, Derek Acree, and their company Blockchain Credit Partners sold securities in unregistered offerings through DeFi Money Market. They used “Smart contracts” to sell two types of digital tokens, mToken and DMG. They sold these tokens from February 2020 to February 2021. The tokens are mTokens that yielded 6.25% interest and “governance-tokens” that offered voting rights and other perks in DMM.
The SEC alleges that they misled investors to believe that it would use investor assets to buy real-world assets that generated income, like car loans”. But they realized the token volatility made this impossible. The company could not operate as promised because its income couldn’t cover the volatility of the price of tokens. They funded smart contracts to allow mToken holders to redeem their tokens for the principal amount and interest owed.
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The respondents agreed to a cease-and-desist order and pay almost $13 million in disgorgement and penalties of $125,000 per person. Moreover, Keough and Acree can not participate in any offering of digital asset security for five years.
