The U.S. Securities and Exchange Commission (SEC) has reached a settlement with Rari Capital Inc., a decentralized finance (DeFi) protocol, and its founders over charges of misleading investors and acting as an unregistered broker for investment platforms that once managed over $1 billion in assets.
Rari Capital offered two investment products functioning like crypto asset investment funds, allowing investors to deposit tokens into lending pools to earn returns. Investors received tokens representing their interest in the pools and a right to profits, as well as Rari Governance Tokens (RGT), which were used in unregistered offers and sales of securities, according to the SEC.
The SEC’s complaint alleged that Rari Capital and its founders—Jai Bhavnani, Jack Lipstone, and David Lucid—misled investors by claiming that the pools would automatically rebalance crypto assets into the highest yield opportunities when, in reality, the rebalancing often required manual intervention, which Rari Capital sometimes failed to perform. Additionally, the SEC accused Rari Capital of overstating potential returns, resulting in significant losses for many investors.
Rari Capital and Fei Protocol, which merged in 2022, suffered a $77 million hack five months after their merger. Rari had also faced a previous exploit in 2021.
Without admitting or denying the SEC’s allegations, the founders consented to final judgments that include civil penalties, disgorgement, and five-year bans from serving as officers or directors. The SEC filed its complaint in the U.S. District Court for the Central District of California.
This settlement is the latest in a series of SEC enforcement actions aimed at the crypto industry, which many industry players view as overly aggressive. Calls for Congress to limit the SEC’s authority and establish clearer regulatory guidelines for crypto companies continue to grow, as the industry seeks a more favorable regulatory environment in the U.S.
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