Securities and Exchange Commission charges DeFi firm with $30 million fraud

The US SEC has charged two men from Florida – and their company – with fraudulently raising $30 million in unregistered sales. Derek Acree and Gregory Keough formed the company Blockchain Credit Partners, and between February 2020 and February 2021, the company misled several customers. The $30 million was raised from the sale of smart contracts.

The smart contracts took the form of two different tokens. The first was the mToken, which could be used to purchase digital assets on the DeFi Money Market and earn 6.25% interest. The second was the DMG token. It offered the ability to vote on Blockchain governance and a share of any excess profits. 

While the tokens were marketed as smart contracts, they were not quite this complex. The defendants intended to use the money raised from the sale of the securities to purchase income-generating assets in real life. They intended to then use this income to pay any interest or profits to customers who had purchased the tokens. 

SEC fraud

However, the defendants did not take into account the volatility of the crypto world. As the digital assets that purchased the initial tokens did not offer guarantees to pay out the promised interest rate, it caused an issue with company operation. Instead of making customers aware of this issue, Mr. Acree and Mr. Keough decided to claim that car loans had been purchased with these assets. The truth was that another company had purchased the car loans under their control and they were using their own funds and company funds to pay out the promised interest rates. 

The Chief of the SEC Enforcement Division’s Complex Financial Instrument United, Daniel Michael, commented: 

Daniel Michael, SEC

Daniel Michael
Source: LinkedIn

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 two defendants had to fund all smart contracts to ensure all holders of tokens received their investment and interest owed back. They also agreed on a disgorgement of $12,849,35, as well as a $125,000 fine for each defendant.


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