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The SEC has filed a complaint against Rari Capital and its founders, alleging violations of the Securities Act of 1933’s registration and anti-fraud provisions. The SEC also claims that the defendants violated broker registration rules under the Securities Exchange Act of 1934.
Rari Capital, a decentralized finance (DeFi) lending platform, operates two investment systems known as the Earn Pool and the Fuse Pool. These systems function similarly to traditional investment funds but use cryptocurrencies.
Investors can deposit their cryptocurrencies into these pools (the Earn Pool managed by Rari and the Fuse Pool created by users) to earn returns. The tokens they receive represent their share in the pools and their right to profits. Some Earn Pool investors also received a token called the Rari Governance Token (RGT).
The SEC accuses Rari Capital and its founders, Jai Bhavnani, Jack Lipstone, and David Lucid, of misleading investors about the operation and profitability of these investment products.
According to the SEC, the Earn Pools were supposed to automatically adjust their cryptocurrency assets to maximize returns. However, this often required manual intervention, which Rari Capital sometimes failed to perform. This led to many investors losing money due to high annual yields that did not account for fees.
The SEC also charges Rari Capital and its founders with conducting unregistered securities offerings and acting as unregistered brokers.
Selling shares in the Earn and Fuse Pools and distributing RGT tokens were considered unregistered securities transactions. The SEC also claims that Rari Capital acted as an unregistered broker through its Fuse platform.
To resolve these issues, Rari Capital and its founders agreed to pay fines and accept a five-year ban from serving as executives or directors, pending court approval. Rari Capital Infrastructure, which took over operations in 2022, also agreed to cease these activities to address charges related to unregistered securities and broker activities.
The SEC emphasized that it will closely scrutinize the actual operations behind cryptocurrency products and platforms, regardless of their claims of being “decentralized” or “autonomous,” and will hold individuals accountable for violating federal securities laws.
Sentiment: Neutral
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