- The SEC has settled charges against Rari Capital and its co-founders for misleading investors.
- Rari Capital was accused of misleading investors with false claims about automatic asset management.
On Wednesday, the U.S. Securities and Exchange Commission (SEC) announced a settlement with Rari Capital, a decentralized finance (DeFi) protocol, along with its co-founders, over allegations of “misleading investors and engaging in unregistered brokerage activities.”
In a recent announcement, the SEC stated that Rari Capital’s Earn and Fuse pools operated similarly to crypto investment funds, allowing users to deposit their crypto assets and earn returns. The SEC’s complaint highlighted that Rari Capital conducted unauthorized sales of securities by offering interests in these pools and their associated governance tokens.
The SEC further alleged that the co-founders—Jai Bhavnani, Jack Lipstone, and David Lucid—misled investors about the functionality of the Earn pools. They had claimed that these pools would “automatically manage and optimize crypto assets for the highest returns.” However, the SEC revealed that they handled this process manually, and there were instances where the rebalancing did not perform as promised.
Additionally, the SEC accused Rari Capital of engaging in unregistered broker activities concerning its user-generated Fuse pools. At its peak, Rari Capital had over $1 billion worth of assets locked in its pools.
Overview of Rari Capital’s Operations and Challenges
Rari Capital was founded in 2020 and aimed to provide automated yield farming. That platform optimized returns across various protocols such as Compound and dYdX. The Fuse protocol allowed users to establish personalized lending and borrowing markets.
In March 2022, Rari Capital suffered a significant security breach when the Fuse platform was hacked. That resulted in a loss of $80 million, as per SEC findings. Following this incident, Rari Capital halted new deposits and began winding down the Fuse service.
As part of the settlement, Rari Capital Infrastructure LLC, which took over Rari Capital after the hack, has agreed to comply with securities laws moving forward. Both Rari Capital and its co-founders did not admit to or deny the SEC’s allegations.
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