SEC Reaches Settlement with Rari Capital Over Fraud Allegations and Unregistered Brokerage

• The United States Securities and Exchange Commission (SEC) announced a settlement with Rari Capital, a decentralized finance (DeFi) platform, over previously unannounced charges.
• The SEC accused Rari Capital and its co-founders of misleading investors and operating as an unregistered broker.
• “We allege that Rari Capital and its co-founders misled investors about both the features and profitability of certain of the crypto asset investments Rari Capital offered, and acted as unregistered brokers,” stated Monique C. Winkler, Director of the SEC’s San Francisco Regional Office.

An in-depth look into the SEC’s settlement with Rari Capital provides insights into regulatory actions within the DeFi space.

SEC Announces Settlement with Rari Capital

The U.S. Securities and Exchange Commission (SEC) made headlines by disclosing its settlement agreement with Rari Capital, a notable decentralized finance (DeFi) platform. The SEC’s actions focused on allegations that Rari Capital and its co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, provided misleading information to investors and operated without proper registration as a broker. At its peak, Rari Capital managed over $1 billion in assets, making the SEC’s scrutiny particularly significant.

Allegations of Misleading Investors

The crux of the SEC’s allegations revolves around claims that Rari Capital misrepresented both the features and profitability of certain crypto asset investments. Monique C. Winkler from the SEC’s San Francisco Regional Office emphasized that the regulator would not be swayed by labels such as ‘decentralized’ or ‘autonomous’ but would instead focus on the underlying economic realities. By casting a critical eye on Rari’s operations, the SEC sought to protect investors from potentially deceptive practices.

Enforcement Measures and Penalties

As part of the settlement, Rari Capital and its co-founders did not admit or deny the SEC’s allegations but agreed to a series of penalties. These include permanent and conduct-based injunctions, civil penalties, disgorgement of profits with prejudgment interest, and equitable officer-and-director bars against the co-founders for a period of five years. Additionally, Rari Capital Infrastructure agreed to comply with a cease-and-desist order, further reinforcing the settlement’s comprehensive nature.

Conclusion

The SEC’s settlement with Rari Capital underscores the regulator’s commitment to ensuring transparency and accountability within the burgeoning DeFi sector. By pursuing actions against entities that mislead investors or operate without proper registration, the SEC aims to safeguard market integrity and investor interests. This case serves as a poignant reminder of the importance of compliance with federal securities laws, regardless of the decentralization or autonomy of a given platform.