DeFi Money Market operators fined $13 million to settle SEC charges

abdelaziz Fathi

The Securities and Exchange Commission (SEC) has charged three people involved with a DeFi investment scheme for misleading investors concerning the operations and profitability of their Cayman Islands business.

How do you define your VIPs?

DeFi Money Market (DMM) was a Decentralized Finance protocol operated by Blockchain Credit Partners, which claims to attempt bringing real-world assets to the DeFi landscape. Much like other DeFi projects, they allowed users to build complicated trades that ran on the Ethereum blockchain, and yield farm by lending their coins as mTokens to earn DMG governance tokens.

However, the SEC says that DMM and its founders, Gregory Keough and Derek Acree, sold the two digital tokens to US investors without registering their illegal $30 million securities offering.

The SEC claims that the offering ran afoul of securities laws because the mTokens and DMG tokens being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.

The project launched in February 2020 with the backing of billionaire venture capitalist Tim Draper, but then announced a sudden and permanent shutdown less than a year after its token launch.

They offered over 6.5% APY on specific staked assets backed by real-world car loans. However, the SEC’s order finds that DMM operatives realized that their business was unable to generate yields to token holders as promised due to the price volatility of the digital assets. Specifically, the profits of income-generating assets were insufficient to cover appreciation of investors’ principal.

Rather than notifying investors of “this roadblock,” the SEC alleges the defendants  misrepresented their business model, including by falsely claiming that DeFi Money Market bought car loans.

“While the respondents controlled another company that owned car loans, DeFi Money Market never acquired an ownership interest in any of those loans. Instead, the order finds that the respondents used personal funds and funds from the other company they controlled to make principal and interest payments for mToken redemptions,” the SEC further explains.

Furthermore, DeFi Money Market and its owners were charged with facilitating the trade of assets classified as securities without following the required steps outlined by the regulators.

The SEC orders impose financial penalties against the company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings. Without admitting or denying the allegations, Keough and Acree agreed to disgorge $12.8 million and pay civil penalties of $125,000 each.

“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,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.

Since the crypto-boom, the SEC has periodically cracked down on a number of fundraising campaigns for fraudulent activity, while continues to warn investors of the potential perils of investing in the nascent sector.

The rapid growth of DeFi has also caught regulators off guard as it extends far beyond cryptocurrencies into insurance, derivatives trading and even savings accounts.

The US derivatives regulator suggested that many DeFi apps could be illegal, and SEC commissioners also singled out the DeFi space as raising “a number of challenges” for investors and regulators

Read this next

Digital Assets

Crypto exchange Bittrex exits US market amid regulatory woes

Bittrex said on Friday it plans to wind down operations in the United States and voluntarily liquidate because of the uncertain regulatory environment surrounding their business.

Institutional FX

Tradeweb completes integration of Nasdaq’s US fixed income platform

Tradeweb Markets has completed the technology integration of Nasdaq’s US fixed income electronic trading platform, formerly known as eSpeed, which it acquired two years ago in a $190 million, all-cash transaction.

Digital Assets

FTX Europe to allow client withdrawals via new website

The Cypriot unit of failed cryptocurrency exchange FTX has launched a new website that it says would allow customers to withdraw deposits of fiat currency and crypto assets after months of suspension.

Retail FX

Liquidators apply to cancel SVS Securities’ FCA license

An update published today by Leonard Curtis said the UK high court of justice has approve their application to bring the special administration of the failed wealth manager SVS Securities to an end.

Digital Assets

Japan forms government panel to pilot digital yen

Japan’s Finance Ministry has created an advisory panel to look at the feasibility of issuing a central bank digital currency, otherwise known as “CBDC”.

Digital Assets

USDC sees massive $10.4 billion outflows in March

Cryptocurrency traders have withdrawn more than $10 billion from the world’s second largest stablecoin, USDC, in less than three weeks even as concerns over the fallout from the Silicon Valley collapse have receded.


OSTTRA’s Joanna Davies goes beyond 30-30-30 data standard at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Joanna Davies about OSTTRA.


CloudMargin’s Stuart Connolly on how to manage collateral amid high rates at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Stuart Connolly about CloudMargin’s SaaS platform, said to be the only cloud-native collateral and margin management system in the industry, at a time of stress due to rising interest rates.


Baton Systems’ Alex Knight on solving post-trade with DLT at FIA Boca 2023

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Alex Knight about Baton Systems’ about rising settlement fails, collateral management, and the profile of DLT beyond cryptocurrencies.