📋 Tender Overview
The Securities and Exchange Commission announced settled charges against Rari Capital, Inc., a supposed decentralized finance (DeFi) protocol, and its co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, for misleading investors and engaging in unregistered broker activity in connection with their operation of two blockchain-based investment platforms that, at their peak, collectively held crypto assets worth more than $1 billion. Rari Capital also settled SEC charges that it conducted unregistered offerings of three securities tied to those platforms. In a separate order, Rari Capital Infrastructure LLC, which took over operations from Rari Capital in 2022, settled charges that it engaged in unregistered securities offerings and unregistered broker activity.
According to the SEC’s complaint, Rari Capital offered two investment products, Earn pools and Fuse pools, which functioned like crypto asset investment funds, allowing investors to deposit crypto assets in lending pools, either managed by Rari (Earn) or user-created (Fuse), and earn returns from their investments. The SEC’s complaint alleges that investors in the pools received a token representing their interest in the pools and the right to receive profits earned by the pools. Certain Earn pool investors also received a governance token, called the Rari Governance Token, or RGT. By selling interests in these pools and RGT, the complaint alleges, Rari Capital conducted unregistered offers and sales of securities.
Furthermore, the SEC’s complaint alleges that Rari Capital and its co-founders falsely told investors that the Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate. The SEC also alleges that Rari Capital and its co-founders misleadingly touted the high annual percentage yield that investors would earn, but they failed to account for various fees and, ultimately, a significant percentage of Earn pool investors lost money on their investments.
