BarnBridge Settles with SEC Over Sale of Unregistered Crypto Products, Fined $1.4 Million
Summary:
The United States Securities and Exchange Commission (SEC) has reached a settlement with the decentralized finance protocol BarnBridge. The protocol was accused of selling unregistered structured financial cryptocurrency products, and has been ordered to cease these activities. The SEC argued that BarnBridge DAO and its founders advertised "SMART Yield Bonds," contravening U.S. law. BarnBridge DAO has been fined $1.4 million by the SEC, and founders Tyler Ward and Troy Murray have each drawn civil penalties of $125,000. BarnBridge has reportedly been inactive since July 6 due to an ongoing SEC investigation.
The American governing authority for decentralized finance (DeFi) protocol BarnBridge, also known as the United States Securities and Exchange Commission (SEC), declared it has finalized a settlement with the company on December 22. According to the SEC statement, the deal involved BarnBridge putting an end to the "selling and distribution of the non-registered structured financial cryptocurrency product." As part of the enforcement action, a ceasefire and withdrawal mandate was given.
Present documentation reveals that BarnBridge gave users an opportunity to "gain steady returns on their investments by exchanging fluctuating APYs from money markets for a constant APY." Originally, the protocol's regulating token, BOND, was distributed as a reward for liquidity providers for Uniswap pools, as revealed in the earliest recovered version of the BarnBridge documents. BOND token owners together make up the BarnBridge decentralized autonomous organization (BarnBridge DAO), the entity being held accountable by the SEC enforcement action.
The SEC alleges in its cease and desist order that the BarnBridge DAO and its founders, Tyler Ward and Troy Murray, marketed "SMART Yield Bonds," a structured investment product that gave investors a fixed interest rate from an asset pool known as a “SMART Yield Investment Pool.” Revenue generated in this way was split between "Senior" and "Junior" tranche investors. The SEC affirmed that Senior investors were promised a fixed interest rate, while the rate for Junior investors varied. Insufficient Senior tranche returns. were supplemented with Junior tranche assets. Any excess revenues, however, were allocated to Junior tranche investors.
It is suggested in the mandate that BarnBridge DAO charged investors of SMART Yield Bond 5% of their profit, which was directed to the “BarnBridge DAO Treasury” smart contract. During the protocol's operation, the DAO approved distribution of these treasury funds to cover numerous business expenses, which consisted of blockchain transaction costs, website hosting charges, programming contracts, and salaries of Ward and Murray.
The SEC stressed that the SMART Yield Investment Pools are "Non-Registered Investment Companies" as per the U.S. Investment Company Act and are therefore obliged to register with the SEC. BarnBridge DAO, being the “operator” of these pools, should have made sure this registration took place.
The SEC announcement mentions that BarnBridge DAO has been ordered to pay a $1.4 million disgorgement to the U.S. Treasury from the funds collected in its treasury. Additional directives include Ward and Murray each paying $125,000 in civil penalties and complying with the order to cease and desist from any further violations of U.S. securities laws.
Following an investigation by the SEC, it is reported that BarnBridge has been non-operational since July 6. On this day, Douglas Park, an attorney elected by the DAO, announced the closure of existing liquidity pools and the decision to not begin new ones. In October, it was publicly revealed by Ward that an order had been placed against the DAO by the SEC. Due to the confidential nature of the matter, no proof of the order was provided. In response, Ward, Murray, and Park were permitted by the DAO to follow the order.
Published At
12/22/2023 9:51:15 PM
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