The SEC has reached a settlement with Rari Capital, a decentralized finance (DeFi) platform, and its co-founders following allegations of misleading investors and conducting unregistered broker activities. Rari Capital, co-founded by Jai Bhavnani, Jack Lipstone, and David Lucid, operated platforms known as Earn and Fuse, which allowed users to deposit crypto assets and earn returns. The SEC’s complaint centered on Rari’s failure to register these offerings as securities and the company’s alleged misrepresentations about the automation of their Earn pools.
Earn, a key product in Rari’s ecosystem, was promoted as an auto-rebalancing pool that would shift funds to maximize returns. However, the SEC found that manual intervention was often necessary and was not always carried out effectively, leading to investor losses. Additionally, the platform’s high annual percentage yield (APY) projections were not transparent about the fees involved, further compounding user losses.
On the Fuse side, which enabled users to create customizable pools for lending and borrowing crypto assets, the SEC argued that Rari’s activities fell under the domain of unregistered broker activity. These allegations were grounded in the Securities Exchange Act of 1934, as the platform facilitated trading without proper registration.
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