SEC brings its first DeFi case over unregistered digital token sales

The U.S. Securities and Exchange Commission brought its first case tied to the booming decentralized finance market, alleging a company sold digital tokens that should have been registered with the Wall Street regulator.

The SEC sued Cayman Islands-based Blockchain Credit Partners and two of its top executives for illicitly offering securities through its DeFi Money Market platform from February 2020 to February 2021, according to a Friday statement. The company sold more than $30 million worth of two types of tokens that the SEC considered to be securities, which must be registered with the agency.

“Full and honest disclosure remains the cornerstone of our securities laws -- no matter what technologies are used to offer and sell those securities,” SEC Enforcement Director Gurbir Grewal said in the statement.

The DeFi market has exploded in recent months by allowing traders to execute transactions directly on the blockchain without going through brokers, banks, crypto exchanges or other intermediaries.

SEC Chair Gary Gensler has repeatedly said that cryptocurrencies need more oversight, while increasingly issuing warnings about DeFi. This week, he said that digital tokens that mirror the price moves of stocks likely need to register with the regulator and comply with its investor-protection rules. Such offerings have been popular on DeFi platforms.

In May, Gensler urged House lawmakers to give the SEC clear authority to police crypto trading venues. In the meantime, he has pledged to use the agency’s existing powers to crack down on the industry through enforcement actions.

Blockchain Credit Partners’s Gregory Keough and Derek Acree will both pay fines of $125,000, the SEC said. The executives and the company also agreed to pay $12.8 million in disgorgement. They settled the case without admitting or denying wrongdoing.