SEC Brings Charges In First Case Using DeFi Tech; Alleged $30M Scheme


The Securities and Exchange Commission (SEC) charged a Florida duo operating a Cayman Islands company with more than $30 million in unregistered securities sales and misleading investors, according to a Friday (Aug. 6) press release.

Gregory Keough, Derek Acree and their company Blockchain Credit Partners offered and sold securities in unregistered offerings through DeFi Money Market from February 2020 to February 2021, according to the SEC’s court filing.

They used so-called “smart contracts” to sell mTokens that could be purchased using specified digital assets and that paid 6.25 percent interest and DMG “governance tokens” that they claimed gave holders certain voting rights and the ability to profit from resales of the tokens on the secondary market.

The men told investors DeFi Money Market could pay the interest and profits because it would use investor assets to buy “real world” assets that generated income, like car loans, according to the SEC announcement.

But they soon realized the company could not operate as promised because their income couldn’t cover the volatility of the price of the tokens. The men misrepresented how the company was operating to their investors, the SEC said.

The SEC also said both the mTokens and DMG governance tokens were offered and sold as investment contracts. The men consented to the SEC’s cease-and-desist order and had to pay almost $13 million in disgorgement and penalties of $125,000 per person. They also funded the smart contracts to allow mToken holders to redeem their tokens for the full amount of principal and interest they are owed.

Related: SEC Chair Gensler Wants More Crypto Oversight Authority

The crypto market is volatile and continues to grow exponentially, sitting today in the $1.6 trillion range with no regulations in place. SEC Chairman Gary Gensler said his urgent cry for more oversight centers on protecting investors.

Bitcoin often moves like a currency, not a security, which adds confusion to who should have oversight over it.

Earlier this year, the Federal Trade Commission indicated that people lost in excess of $80 million due to crypto scams between October and March, per CNBC.