On August 6, 2021, the U.S Securities and Exchange Commission charged two Florida men and their Cayman Islands company with unregistered sales of more than $30 million of securities using smart contracts and decentralized finance (DeFi). The SEC said this was its first case involving securities using DeFi. 

According to the SEC’s order, Gregory Keough, Derek Acree, and their company Blockchain Credit Partners, offered and sold securities in unregistered offerings through DeFi Money Market (DMM) from February 2020 to February 2021. The order finds that they used smart contracts to sell two types of digital tokens: mTokens that could be purchased using specified digital assets and that paid 6.25 percent interest, and DMG “governance tokens” that purportedly gave holders certain voting rights, a share of excess profits, and the ability to profit from DMG governance token resales in the secondary market.

The order further alleges that in offering and selling these tokens, the respondents stated that DMM could pay the interest and profits because it would use investor assets to buy “real world” assets that generated income, like car loans.  According to the Commission, after publicly unveiling DMM, the respondents realized that DMM could not operate as promised because the price volatility of the digital assets used to purchase the tokens created risk that the income generated through income-generating assets would be insufficient to cover appreciation of investors’ principal.  The order finds that the executives failed to notify investors of these roadblocks.  Allegedly, respondents used personal funds and funds from the other company they controlled (which did in fact make car loans) to make principal and interest payments for mToken redemptions. 

The SEC said that Keough and Acree agreed to pay fines of $125,000. The executives and the company also agreed to pay $12.8 million in disgorgement.  The company has been shut down. Respondents settled the case without admitting or denying wrongdoing.  Commissioner Hester Pierce had an interesting tweet regarding the case, saying that the project was a “DINO (decentralized in name only).”


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.