The Securities and Exchange Commission of the United States has filed charges against two decentralized finance platforms. This is the first time any DEX platform has been charged by Federal authority. According to SEC, two men hailing from California are responsible for dealing in $30 million unregistered securities with the help of smart contracts and Defi protocols.
The SEC has also extended their investigation to a company in Cayman Island that was also under the supervision of the aforementioned criminals. The defendants of the case, Gregory Keough and Derek Acree, have been operating a blockchain-based debt facilitation company and offer credit partnerships under pretense. According to the prosecution, the alleged scammers forged documents to fool their investors.
SEC investigation reveals that the two criminals offered their consumers two digital tokens. The mToken and the DMG governance token holders were informed that they could earn a profit as high as 6.25% on their investment. Keough and Acree told their investors that money from the DeFi market is useable for investing in real-world asset class commodities. They were planning to invest in car loans.
The SEC further claimed that due to the high volatility of the digital asset, the scammers were unable to generate enough income for reaching their investment mark. Despite the failure of their business model, they did not inform their stakeholders and used personal funds as well as money from another enterprise under their wing to keep going on with their business operations.
SEC Chief Claims Criminals Tried to Use Financial Terms to Justify their Actions
Daniel Michael is the Chief for Enforcement Division and Complex Financial Instruments at SEC. Commenting on the case, he claimed that the scammers kept deceiving their investors and took advantage of their trust to run a bogus business model. He further added that despite the use of DEX label and trading of securities under the guise of governance that SEC investigators were not thrown off.
The SEC ensured that the money of the investors has returned, and the fraud business model is dissolved with immediate effect. Michael further added that due to the infrastructure of the business, the mTokens and the DMG governance tokens were unregistered securities in reality. Both convicted persons have accepted a seize-and-desist order and a legal penalty of $125,000 each.