The U.S. Securities and Exchange Commission has taken its first regulatory action involving decentralized finance in a case involving the “unregistered sales of more than US$30 million in securities,” according to an agency press release.

Fast facts

  • Gregory Keough and Derek Acree were charged along with their Cayman Islands-based company, Blockchain Credit Partners, over allegedly fraudulent sales of “securities involving DeFi technology” and for “misleading investors concerning the operations and profitability of their business DeFi Money Market,” between February 2020 and February 2021.
  • The parties used smart contracts to sell mTokens, which promised 6.25% returns and DMG governance tokens, which supposedly gave holders voting rights and a share of excess profits from future sales. The order found that due to the digital assets’ ongoing price volatility, the returns promised to investors could not be made. The respondents allegedly chose to conceal that from investors, instead misreporting company operations and providing initial interest payments from personal funds and from other companies they owned.
  • Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit 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.”
  • The case is the first regulatory action taken by the U.S. agency. In Asia, Thailand’s Securities and Exchange Commission announced in June that it was seeking to regulate DeFi, saying all digital tokens issued for transactions must have its approval. The agency cautioned against unauthorized issuances of digital tokens and said the operation of digital asset businesses without a license was punishable under the Digital Assets Act.
  • Speaking with Forkast.News recently, U.S. SEC Commissioner Hester Peirce said she was pushing for greater regulatory clarity around cryptocurrencies in general, although she recognized the difficulty of regulating DeFi. She said: “The DeFi space is one that really asks us to reimagine [the SEC] entirely. How finance is done and if it moves us away from a world where we as a regulator are dealing with a few specific entities that play a major role in the financial system. Well, that’s the point from the people who are innovating in this space. But it also does make our job more difficult if something does go wrong.”