SEC files charges against Rari Capital founders for investor fraud

The U.S. Securities and Exchange Commission (SEC) has charged decentralised finance (DeFi) platform Rari Capital and its co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, for misleading investors and operating as unregistered brokers. 

The charges come after an investigation revealed that the platform misrepresented its services and failed to comply with securities regulations. 

The SEC found that Rari Capital's Earn and Fuse pools allowed users to deposit crypto assets, but the platform allegedly misled investors about the functionality of its products. 

Rari claimed that its Earn pools autonomously rebalanced crypto assets to maximise returns, yet manual intervention was frequently needed. 

Additionally, hidden fees led to substantial losses for many investors. 

The complaint also alleges that Rari Capital and its co-founders violated securities laws by selling interests in these pools and the Rari Governance Token (RGT) without the necessary registration. 

The SEC accused the platform of misrepresenting potential returns while failing to disclose significant risks and fees, harming investors in the process. 

The SEC's charges highlight concerns around unregistered broker activity. 

It emphasised that labeling platforms as "decentralised" does not exempt them from following federal securities laws. 

"Deceptive practices and unregistered securities offerings harm investors," the SEC noted in its announcement. 

As part of the settlement, the co-founders have agreed to pay civil penalties, including disgorgement, without admitting or denying the allegations. 

They also face a five-year officer-and-director bar.