A crypto-based structured product was shut down in a settlement with the U.S. Securities and Exchange Commission (SEC).
The co-founders of a so-called decentralized autonomous organization, BarnBridge DAO, agreed to stop offering their unregistered structured product, known as SMART Yield bonds, in a deal with the SEC.
According to the SEC’s order, the products, which generated over US$500 million in assets, sought to mimic traditional asset-backed securities by pooling cryptoassets and using those assets to generate investor returns from third-party lending platforms.
The regulator alleged they violated securities rules by offering the SMART Yield bonds as fixed-income notes without registering them or qualifying for an exemption.
To settle the SEC’s charges, BarnBridge agreed to disgorge nearly US$1.5 million, representing the fees it generated from investors’ funds. The DAO’s co-founders, Tyler Ward and Troy Murray, also each agreed to pay US$125,000 penalties.
BarnBridge, Ward and Murray agreed to settle the allegations, without admitting or denying any wrongdoing.
The SEC said the settlement took into account the fact that Ward and Murray took various remedial steps, including closing investments in a second version of the SMART Yield offering that had launched in January.
They also cancelled a new product launch, limited access to platforms used by BarnBridge DAO (such as Discord and GitHub), and stopped development of further securities using the BarnBridge protocol.
“The use of blockchain technology for the unregistered offer and sale of structured finance products to retail investors runs afoul of the securities laws,” said Gurbir Grewal, director of the SEC’s enforcement division, in a release.
“This case serves as an important reminder that those laws apply to all who wish to access our capital markets, regardless of whether they are, or purport to be, incorporated, decentralized or autonomous,” he said.