The U.S. Securities and Exchange Commission (SEC) has settled with Rari Capital, Inc., and its founders, Jai Bhavnani, Jack Lipstone, and David Lucid.
The SEC’s complaint alleges that Rari Capital and its founders violated securities offering registration and antifraud regulations under the Securities Act of 1933. It also claims that the defendants breached broker registration rules under the Securities Exchange Act of 1934.
Rari Capital is a decentralized finance (DeFi) lending platform that operates two investment systems known as Earn pools and Fuse pools, which function similarly to traditional investment funds but utilize cryptocurrencies.
Investors could put their crypto into these pools—Earn pools managed by Rari and Fuse pools created by users—to earn returns. They got tokens showing their share in the pools and their right to profits. Some Earn pool investors also received a token called the Rari Governance Token.
The SEC accused Rari Capital and its founders—Jai Bhavnani, Jack Lipstone, and David Lucid—of misleading investors about how these investment products worked and their profitability.
The SEC said the Earn pools were supposed to automatically adjust their crypto assets to maximize returns, but this often required manual changes that Rari Capital sometimes didn’t make. This led to many investors losing money due to high annual percentage yields that didn’t account for fees.
The SEC also charged Rari Capital and its founders with running unregistered securities offerings and acting as unregistered brokers.
Selling shares in the Earn and Fuse pools and distributing RGT tokens were considered unregistered securities transactions. The SEC also alleged that Rari Capital acted as an unregistered broker through its Fuse platform.
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To resolve these issues, Rari Capital and its founders agreed to pay fines and accepted a five-year ban from being officers or directors, pending court approval from Rari. Rari Capital Infrastructure, which took over in 2022, also settled charges related to unregistered securities and broker activities by agreeing to stop these actions.
The SEC stressed that it will closely examine the real operations behind crypto products and platforms, regardless of their claims of being “decentralized” or “autonomous,” and will hold individuals accountable for breaking federal securities laws.
