In the first enforcement action against a “decentralized finance” platform, the founders of DeFi Money Market have agreed to pay more than $13 million to settle charges that they illegally sold more than $30 million in securities.

According to the U.S. Securities and Exchange Commission, DMM’s sales of two digital assets — mTokens and DMG “governance tokens” — were illegal because the offerings were unregistered and founders Gregory Keough and Derek Acree misled investors about their company’s business operations and profitability.

The mTokens claimed to offer 6.25% annual interest by using clients’ cryptocurrency holdings to buy real-world assets such as car loans. The governance tokens would trade on secondary markets and purported to give investors voting rights on DMM’s business and a share of its profits.

As part of a settlement, Keough and Acree agreed to pay disgorgement of more than $12.8 million and penalties of $125,000 each. DMM announced in February it was shutting down after receiving an SEC subpoena.

“The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest technology,” Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a news release.

“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,” he added.

DeFi platforms are often used by people seeking to borrow against their cryptocurrency holdings. SEC Chair Gary Gensler last week urged Congress to granting financial regulators clear oversight of the crypto industry, including DeFi platforms.

DeFi frauds cost investors $83.4 million from January to April, according to analytics firm CipherTrace.

In an administrative order, the SEC said Keough and Acree sold approximately $17.7 million in mTokens and more than $13.9 million in DMG tokens to the public from February 2020 to February 2021, claiming they could pay the interest and profits by using investor assets to buy “real world” assets that generated income such as car loans.

While another company they controlled owned such assets, they allegedly never transferred ownership of any of them to DMM.

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