SEC charges Rari Capital founders for misleading investors

The U.S. Securities and Exchange Commission (SEC) has taken action against the decentralized finance (DeFi) platform Rari Capital and its co-founders for allegedly misleading investors and operating as unregistered brokers.

Rari Capital claims that its Earn pools autonomously rebalance crypto assets

Rari Capital is a DAO that provides lending, borrowing and yield farming opportunities. The platform offered Earn and Fuse pools, which functioned like crypto asset investment funds when manual intervention was often required. Additionally, they allegedly misrepresented the profitability of these investments and charged hidden fees that contributed to significant losses for investors.

Rari Capital’s co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, are also accused of engaging in unregistered broker activities by selling interests in the platform’s pools and the Rari Governance Token (RGT).

The co-founders have agreed to settle the charges without admitting or denying the allegations, accepting penalties that include civil fines, disgorgement, and a five-year officer-and-director bar.

The SEC has intensified its crackdown on various crypto projects

Since the beginning of the year, the SEC has commitment to scrutinizing cryptocurrency projects, particularly those falsely marketed as “decentralized” or “autonomous,” while violating federal securities laws.

The federal regulator has issued Wells notices, filed lawsuits, or reached settlements with a host of crypto firms. The SEC’s legal challenges are increasingly focussing on Ethereum and decentralized finance players such as ShapeShift, TradeStation, Uniswap, and Consensys. This comes as the CIA is purportedly conducting an investigation into the Ethereum Foundation.

Consensys filed its own lawsuit in April, claiming that the SEC had overreached. The 10-year-old cryptocurrency corporation stated that the lawsuit followed three subpoenas delivered last year, as well as a Wells notice from the SEC alleging that the company was breaking federal securities laws.“

ConsenSys founder and long-time Ethereum veteran Joseph Lubin said: 

This action is about the almost certainty that we hold that the SEC is trying to slow or kill Ethereum, decentralization, disintermediation, and disintermediated technology in the U.S., and probably wouldn’t stop there with its long arm. It might influence other nation-states to do similarly draconian things. Joseph Lubin

The SEC has been aggressively scrutinizing the cryptocurrency industry in recent years. The agency’s chair, Gary Gensler, regards most digital assets as securities subject to SEC regulations.

According to a Cornerstone Research analysis, the agency brought over 170 cryptocurrency-related enforcement proceedings by the end of 2023, collecting almost $3 billion in penalties and other costs.