- The SEC has settled charges against Rari Capital, Inc. and its co-founders for misleading investors and conducting unregistered broker activities
- The charges stem from Rari’s operation of two investment platforms that held over $1 billion in crypto assets at their peak
- Rari Capital’s successor, Rari Capital Infrastructure LLC, has also settled similar charges related to unregistered securities offerings and broker activity
The U.S. Securities and Exchange Commission (SEC) has announced the settlement of charges against decentralized finance (DeFi) protocol Rari Capital, Inc. and its co-founders for misleading investors and operating without proper registration. The SEC’s complaint details that Rari Capital, which once managed over $1 billion in crypto assets, sold unregistered securities and falsely promoted features of their investment products. A separate charge has also been settled with Rari Capital Infrastructure LLC, which took over operations in 2022, for continuing unlawful activities.
Rari Captial “Misled Investors”
The SEC’s complaint alleges that Rari Capital offered two crypto investment products, Earn pools and Fuse pools, which allowed investors to deposit crypto assets and earn returns. The Earn pools were supposed to automatically rebalance assets to optimize yields, but according to the SEC, this system often required manual intervention, contradicting what investors were told.
“Rari Capital and its co-founders misled investors about both the features and profitability of certain of the crypto asset investments,” said Monique C. Winkler, Director of the SEC’s San Francisco Regional Office.
The SEC also claims that Rari failed to disclose the full range of fees involved and, as a result, many investors saw losses, despite the high returns being advertised. Additionally, Rari Capital and its co-founders sold governance tokens, known as Rari Governance Tokens (RGT), which were also classified as unregistered securities.
Unregistered Broker Activity
In addition to misleading investors, the SEC asserts that Rari Capital engaged in unregistered broker activity through the Fuse platform, which allowed user-created lending pools. This activity was carried over by Rari Capital Infrastructure LLC, which took over operations in 2022 but continued to offer and sell securities without proper registration.
Rari Capital, along with its co-founders Jai Bhavnani, Jack Lipstone, and David Lucid, has settled the SEC’s charges without admitting or denying the allegations. The settlements include various forms of relief, such as civil penalties, disgorgement, and officer-and-director bars for five years.
“We will not be deterred by someone labeling a product as ‘decentralized’ and ‘autonomous,’” Winkler emphasized, highlighting the SEC’s commitment to holding individuals accountable.
