SEC Charges Digital Token Company With Misleading Investors About Source of Profits

By:
Chris Gaetano
Published Date:
Aug 6, 2021
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The Securities and Exchange Commission accused Gregory Keough and Derek Acree, as well as their company Blockchain Credit Partners, of misleading investors as to the nature of their company and where its profits come from. 

The SEC's cease-and-desist order charges that the pair embarked on a plan to sell investors digital tokens that would be used to buy real-world assets such as car loans, which would then provide consistent income to the asset holders. Between February 2020 and February 2021, the pair sold about $31 million worth of these tokens. Where the idea ran into problems, though, was the fact that while the assets the company intended to buy would indeed have generated sufficient interest, there was a significant risk that the income would not be enough to cover the tokens' appreciation, given the highly volatile nature of digital tokens. 

The pair pressed on, however. The SEC charged that, instead of notifying investors of this roadblock, the respondents misrepresented how the company was operating:
They told investors that token proceeds had recently been used to buy a number of car loans, which were generating profit based on the sale. While there were profits, the SEC order said that these profits were not coming from the digital assets. Instead they were coming from a Florida financing company, which actually owns the loans. The pair used token funds to send a large loan to this Florida company, the payments from which were then represented to investors as the car loan payments they were talking about. Money from the investment was coming from these funds rather than any cash flow from the company itself. 

While the pair, throughout this scheme, was able to repay all principal and interest owed to investors, the SEC still faulted them for fundamentally misrepresenting how the company worked and where its money came from. 

“Full and honest disclosure remains the cornerstone of our securities laws – no matter what technologies are used to offer and sell those securities,” said Gurbir S. Grewal, director of the SEC Enforcement Division. “This allows investors to make informed decisions and prevents issuers from misleading the public about business operations.

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