SEC accuses Rari Capital of misleading investors and engaging in unregistered activities

The U.S. Securities and Exchange Commission has announced charges against decentralized finance platform Rari Capital and its co-founders, accusing them of misleading investors and acting as unregistered brokers.

According to the SEC releaseThe charges involve two blockchain-based investment platforms that, at their peak, held more than $1 billion in crypto assets.

Unregistered investments and misleading claims

Rari Capital and its founders (Jai Bhavnani, Jack Lipstone, and David Lucid) allegedly conducted unregistered securities offerings through these platforms. The SEC alleges that Rari Capital offered two primary investment products: Earn funds and Fuse funds.

Both products allowed investors to deposit cryptocurrencies into lending pools and earn profits. While Earn pools were managed by Rari, Fuse pools were created by users, the statement said.

Investors received tokens representing their interests in these pools and, in some cases, governance tokens called Rari Governance Token (RGT), giving them the right to vote on platform decisions.

The SEC alleges that Rari Capital falsely claimed that Earn funds would be automatically rebalanced into the highest-earning cryptocurrency investments. In reality, this process often required manual intervention, which was sometimes neglected, resulting in investors losing money.

Rari is also accused of promoting high returns without taking proper account of fees. Many Earn fund investors ended up suffering losses.

Broader implications for DeFi regulation

Rari Capital’s troubles show that even DeFi platforms can fall under regulatory scrutiny. Although Rari has presented itself as autonomous and decentralized, the SEC is treating it like any other financial entity offering investment products.

“We will not be intimidated by anyone labeling a product as “decentralized” and “autonomous,” but will look beyond the labels to the economic realities, as we did here, and hold the people behind crypto products and platforms accountable when they harm investors and violate federal securities laws.”

Monique C. Winkler, Director of the SEC's San Francisco Regional Office

As part of the settlement, Rari Capital and its founders agreed to civil penalties, including being barred from serving as officers or directors for five years.

Rari Capital Infrastructure, which took over Rari’s operations in 2022, also settled with the SEC on similar charges. Neither Rari nor its founders admitted to the allegations but agreed to the SEC’s terms.