The SEC just issued a $13 million fine in its first-ever DeFi enforcement action
SECslapped two Florida men with a $13 million fine in the agency's first-ever decentralized finance enforcement action.
- Investors would buy into a
DeFifund with the guarantee that any principal plus 6.25% interest could be redeemed at any time.
- The DeFi money market fund was supposedly fully backed by real-world assets, but the SEC found this was a misrepresentation.
The two men created a DeFi money market fund that promised 6.25% interest. Investors would buy in with more mainstream cryptocurrencies like ether, with the guarantee that any principal plus interest could freely be redeemed at any time.
The DeFi money market fund was supposedly fully backed by real-world assets such as secured auto loans. But while investors were eventually paid in full, the DeFi money market fund was not fully backed and was voluntarily shut down in February.
"The federal securities laws apply with equal force to age-old frauds wrapped in today's latest technology," Daniel Michael, a top SEC enforcement official, said in a statement. "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 money market fund used smart contracts, via the ethereum blockchain, to swap
But an SEC investigation revealed that the real-world assets, largely loans backed by car liens, ostensibly backing the project were actually owned by a different company, the Florida Finance Company, which the DeFi fund had lent to.
For this, the SEC charged the Florida men with violating federal anti-fraud laws and running an unregistered securities offering.
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