According to the announcement, the SEC’s investigation revealed that Rari Capital, through its Earn and Fuse pools, allowed investors to deposit crypto assets into lending pools while reportedly misleading them about the functionality and profitability of the investment products. As stated by the SEC, the platform falsely claimed that its Earn pools autonomously rebalanced crypto assets, when in fact, manual intervention was often required.

This, along with hidden fees, resulted in substantial losses for a significant portion of investors. In addition to the deceptive practices, the securities regulator insists that Rari Capital and its co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, allegedly engaged in unregistered broker activity.

The SEC stated that the founders violated securities laws by selling interests in these pools and the Rari Governance Token (RGT) without proper registration. The complaint further alleges that the firm misrepresented the potential returns and failed to account for significant fees and risks, ultimately causing investor harm.

The SEC announcement on Wednesday states that the co-founders have settled the charges without admitting or denying the allegations, consenting to various penalties, including civil fines, disgorgement, and a five-year officer-and-director bar. The SEC emphasized its continued scrutiny of projects in the cryptocurrency space, particularly those that mislabel their products as “decentralized” or “autonomous,” while engaging in activities that violate federal securities laws.

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