Enforcement action against the decentralized finance (DeFi) market within the US has been taken by the Securities & Exchange Commission (SEC) for the very first time. SEC alleges that it has identified and charged a platform that was actively offering DeFi services in the US by selling securities worth exceeding US$ 30 Million while defying the US investors.
There is infighting between the two major Commissions of the US namely the SEC and the Commodity Futures Trading Commission (CFTC). Both claim supervisory and enforcement rights over the US’s crypto market. SEC is claiming that virtual assets are “securities” and therefore fall within the scope and ambit of SEC. Meanwhile, the claim of CFTC is that virtual assets are “stocks” and not “securities” and therefore CFTC is the exclusive regulatory authority. However, SEC has taken a lead upon CFTC by initiating enforcement against a crypto entity.
A crypto firm, which was lending DeFi services, was subjected to enforcement action by SEC. As per SEC, action has been taken because the authority found the entity engaging in securities under the garb of DeFi technology.
The company that has been charged is reportedly a Cayman Islands registered company known as Blockchain Credit Partners. The firm was founded by two individuals namely Derek Acree and Gregory Keogh. An allegation of selling unregistered products of “securities” by Blockchain Credit Partners has been raised by SEC. SEC claims that the firm had sold unregistered securities i.e. DeFi technology for approximately US$ 30 Million in the US market. This violated the principles of fair trading as the customers were misguided to purchase DeFi as a product of crypto. Instead, the same are “securities” and require prior sale registration, claimed SEC.
Further allegations too were raised against Blockchain Credit Partners involving the usage of smart contacts for selling tokenized crypto. The authority noticed that the firm was selling two DeFi based tokenized crypto namely DMM and mtokens. After each sale of tokenized crypto, the firm promised to return interest at an average of 6.25% for the purchase of mtokens. While against the purchase of DMG, the firm offered a piece within the firm’s excess profits and voting rights, etc. as well.
While offering the sale of two tokens, the firm claimed that the profits and interest will be paid from the DeFi Money Market. The firm further claimed that the virtual funds of the buyers will be utilized towards the purchase of traditional assets. For instance, the firm will acquire those types of assets which would be able to generate income. However, the firm realized that crypto’s volatility would involve risks and it wouldn’t be able to return the profits as promised. Thereafter, the company lied to the investors that DeFi Money Market had acquired income-earning assets, however, none of the assets were acquired. Nor was the DeFi Money Market was involved at all. Thus, the company intentionally defied customers and therefore action was taken against the firm, claimed SEC.
SEC has issued cease and desist order against Blockchain Credit Partners, which the firm has acted upon. Meanwhile, a penalty of US$ 125,000 has been imposed against the firm and the firm has been directed to return the money.