The U.S. Securities and Exchange Commission (SEC) has reached a settlement in a lawsuit against decentralized finance (DeFi) protocol Rari Capital Inc. and its founders.
Rari Capital has been accused of misleading investors and providing unregistered brokerage services, with the company reportedly holding more than $1 billion in assets on platforms it managed.
Rari Capital offered investors two different investment products that functioned like crypto asset funds. Investors had the opportunity to earn returns by investing tokens in these fund pools.
Investors in the pools were given a token representing their stake in these funds and were given a share of the profits made by the pool. In addition, some investors received a governance token called the “Rari Governance Token” (RGT). The SEC stated that with these tokens, Rari was selling unregistered securities.
They were accused of misleading crypto investors
According to the SEC’s allegation, Rari Capital and its three co-founders “falsely” represented to investors that pools would automatically rebalance to the highest-yielding opportunities. In reality, however, this balancing mechanism often required manual intervention and Rari Capital occasionally failed to do so.
Additionally, the SEC alleged that Rari and its founders “misleadingly” presented high annual percentage returns to investors, but many investors lost money on these pools.
Rari Capital was hit with a $77 million cyberattack in 2021 and five months after its merger with Fei Protocol in 2022. Co-founders Jai Bhavnani, Jack Lipstone and David Lucid agreed to settle the matter, neither admitting nor denying the allegations. The settlement includes civil penalties, forced repayment and director bans for five years.
Stay tuned for new information.