Jonathan Ernst/ReutersIn its first ever decentralized enforcement action on finance, the SEC fined two men in Florida $13 million.Investors would purchase a DeFi fund that offered the promise of any principal plus 6.25% interest being redeemed at any moment.DeFi's money market fund was said to be fully backed by real assets. However, the SEC found that this was a fabrication.Subscribe to our daily newsletter 10 Things Before The Opening Bell.Two Florida men were fined $13 million by the Securities and Exchange Commission for defrauding investors. This was in response to their first ever decentralized finance enforcement action.Two men founded a DeFi money fund, promising 6.25% interest. With the promise that all principal and interest would be freely redeemed, investors would purchase more mainstream cryptocurrency like ether.DeFi's money market fund was said to be fully backed by real assets like secured auto loans. However, investors received their full compensation in February. The DeFi money market fund was then voluntarily closed down.Daniel Michael, a senior SEC enforcement official, stated in a statement that "the federal securities laws apply equally to age-old fraudulents wrapped in today’s latest technology." "Here, we did not allow the decentralization of the offering or the inclusion of governance tokens in the securities didn't hinder us from making sure that DeFi Money Market was immediately closed down and that investors were repaid."Smart contracts were used by the money market fund via the Ethereum blockchain to exchange crypto investments for the fund’s governance token. These tokens could be used to vote on the location of profits and act as ownership shares in a larger project.An SEC investigation found that the real-world assets, which were mainly loans backed with car liens, that were supposed to have supported the project were actually owned and controlled by the Florida Finance Company. This company was lent to the DeFi fund.The SEC indicted the men from Florida with violating federal antifraud laws as well as running an unregistered stock exchange.
