The co-founders are accused by the SEC of managing blockchain platforms that housed cryptocurrency assets valued at over $1 billion while engaging in unregistered broker activities.
The US SEC on Wednesday announced a settlement with DeFi platform Rari Capital and its founders over misleading investors and operating as unregistered brokers.
Co-founders Jai Bhavnani, Jack Lipstone, and David Lucid are accused by the SEC of managing two blockchain investment platforms in order to engage in unregistered broker activities. These platforms managed over $1 billion in cryptocurrency assets at their height.
Moreover, allegations of unregistered securities offerings connected to three of the platform’s assets led to a settlement between Rari Capital and the SEC. Rari Capital Infrastructure LLC also settled charges related to broker activities and unregistered securities offerings after taking over in 2022.
SEC Alleges Rari Capital’s Earn and Fuse Pools Involved Unregistered Securities
Rari introduced two investment products, Earn pools and Fuse pools, according to the SEC’s complaint. These served as cryptocurrency investment funds, allowing users to contribute funds to lending pools. Investor returns were generated by both user-created Fuse pools and Earn pools, which were managed by Rari.
In addition to receiving tokens that represented their profit and stake rights, investors in the Earn pool also acquired Rari Governance Tokens (RGT). According to the SEC, Rari Capital engaged in unregistered securities transactions by providing these tokens and RGT.
Rari Allegedly Misled Investors on Earn Pools’ Returns
The complaint further alleged that by representing that Earn pools would automatically reallocate assets to the highest yielding opportunities, Rari and its co-founders had deceived investors. Frequently, manual intervention was necessary, and Rari Capital occasionally disregarded this. In order to draw investors, they also advertised high annual percentage yields while keeping a number of fees hidden. Many investors in Earn pools lost money as a result.
Through their administration of the Fuse platform, Rari and its co-founders are also accused by the SEC of engaging in unregistered broker activities. After acquiring Fuse in March 2022, Rari Capital Infrastructure carried on providing unregistered Fuse pool interests and engaging in broker activity without the required registration.