“Full and honest disclosure remains the cornerstone of our securities laws – no matter what technologies are used to offer and sell those securities. “This allows investors to make informed decisions and prevents issuers from misleading the public about business operations.”
Gurbir S. Grewal, Director of the SEC Enforcement Division
(CMR) The U.S. Securities and Exchange Commission (SEC) has filed a $30 million fraud charge against a Florida duo and their Cayman Islands company involved in unregistered securities sales and misleading investors using smart contracts and “decentralized finance” (DeFi) technology. The SEC shared that this was the first enforcement action involving securities utilizing DeFi technology.
The Cayman company Blockchain Credit Partners doing business as DeFi Money Market along with Florida residents Gregory Keough and Derek Acree have been charged with offering and selling unregistered offerings from February 2020 to February 2021 according to the SEC's court filings.
Blockchain Credit Partners is registered in the Cayman Islands and advertised as “the world's first tokenized private credit offering”.
They are accused of misrepresenting information to investors about the “smart contracts” that would be used to sell mTokens that could be purchased using specified digital assets. It would pay 6.25 percent interest and DMG “governance token” which they claimed gave holders certain voting rights and the ability to profit from the resale of the tokens on a secondary market.
The marketed the offering to investors as:
“BCP is tokenizing asset-backed debt providing consistent high-yield cash flow payments through lending against secured assets. This is the first time high-yield private credit has been tokenized using the blockchain and the tokens represent ownership in high yield secured pools of auto loans that generate monthly cash flow.”
The SEC alleges Keough and Acree misrepresented how the company was working with traders and that is as unlikely to be able to pay curiosity and earnings from mTokens. The SEC’s order finds that the mTokens were notes and were also offered and sold as investment contracts, the DMG governance tokens were offered and sold as investment contracts
The men have submitted an Offer of Settlement without admitting or denying the SEC's finding and have consented to the cease-and-desist order that includes disgorgement totaling $12.8 million and penalties of $125,000 each. They also funded the smart contracts so that mTokens holders could redeem them and receive all principal and interest owed.
“The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest technology.“Here, the labeling of the offering as decentralized and the securities as governance tokens did not hinder us from ensuring that DeFi Money Market was immediately shut down and that investors were paid back.”
Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit
The website claims that “The BCP High-Yield Fund leverages the Managing Partners’ Gregory Keough and Derek Acree substantial experience in the traditional and online secured lending space. They have also served as C- Level executives at Global Fortune 500 enterprises.” Their primary website is no longer operational.
Back in October 2019 GHV Co-Founder, Alon Goren showed enthusiasm for the product by nothing that:
“I think Blockchain Credit Partners is a great example of something new and exciting in the blockchain and security token space, I think tokenized high yield debt is one of the killer apps for blockchain as everyone is looking for high yield cash flow payments. The fact that BCP provides double-digit yield secured by autos we find very exciting.”
According to online biography, Derek Arcee attended the University of Florida – Fredrik G. Levin College of Law. He began his career at Morgan Stanley where he served as an Assistant Vice President between August 1999 and November 2002. He proceeded to spent another two years as a Vice President at Lennar and from there, he joined TOUSA in October 2004 as a Senior Vice President and served there for close to four years. Derek Acree was a Chief Legal Officer and Managing Director at Daedalus Advisors for two years and as a Counsel at MasterCard for less than a year. He became a Founding Partner at Acree & Associates, P.A in 2001.
He also attended the London School of Economics and Political Science (LSE) where he studied Cryptocurrency Investment and Disruption. He claimed to be residing in the Cayman Islands.
Gregory Keough claims to be “one of the few living recipients of the Central Intelligence Agency's (CIA's) Intelligence Star Medal for extraordinary courage in the line of duty.”
His online bio notes that he's native fluency in English and Spanish and over 20 years of experience working in emerging markets internationally and in developing new digital business models and platforms to serve the digital needs of digital native consumers globally. He notes that he is a seasoned global executive and entrepreneur with 25+ years global experience and an impressive track record of digital innovation in both large enterprises (MasterCard, Telefonica, and others) as well as startups.
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