Rari Capital Settles With SEC Over Unregistered Offerings 

Rari Capital, a defunct DeFi protocol, is the latest project to settle charges brought by the U.S. Securities and Exchange Commission (SEC).

A Sept. 18 court order revealed that Rari Capital and its co-founders settled with the SEC over allegedly offering unregistered securities and operating as an unlicensed broker via its Fuse platform and Earn pool.

Investors could deposit crypto assets into Fuse and Earn and receive "fTokens" in return. FToken holders would receive a share of the interest earned from Rari mobilizing the assets for yield generation. The SEC described fTokens as unregistered investment contracts and likened Fuse and Earn to unlicensed investment funds.

"Respondent invited Fuse pool investors to reasonably expect that they would earn profits derived from the efforts of respondent and others," the SEC order stated. “Rari Capital has never been registered with the Commission in any capacity and has never had any securities registered with the Commission.”

The SEC found that Rari's co-founders — Jai Bhavnani, Jack Lipstone, and David Lucid — also misled investors about the “high annual percentage yield” purportedly offered through some of its pools.

Rari Capital and its co-founders agreed to settle the charges without admitting or denying the allegations. The settlement terms include fines and a five-year ban on Rari's co-founders acting as officers or directors for a company. The value of the fines are still subject to court approval.

Rari generated total revenue of $2.32 million by charging a 10% performance fee on interest earned from its pools.

At its November 2021 peak, the Fuse platform held more than $1 billion worth of assets across 180 pools and boasted a user base of 10,000, while Rari hosted a total value locked of $1.3 billion, according to DeFi Llama.

"We will not be deterred by someone labeling a product as 'decentralized' and 'autonomous,' but instead will look beyond the labels to the economic realities… and hold the individuals behind crypto products and platforms accountable when they harm investors and violate the federal securities laws," said Monique Winkler, director of the SEC’s San Francisco regional office.

Rari Capital shuts down after exploits

Rari Capital ceased operations in 2022 after suffering repeated exploits.

In May 2021, hackers made off with $15 million worth of Ether. The attackers exploited vulnerabilities in Rari’s contract integrating support for Alpha Finance.

In April 2022, the platform suffered a reentrancy attack targeting multiple Fuse pools, culminating in a roughly $80 million loss.

Rari Capital halted new deposits and ceased operations in response to the exploit. Rari also mobilized the $2.32 million in fees it collected to offer partial compensation to affected users.

Rari Capital merged with Fei Protocol in December 2021.