In a recent development, the Securities and Exchange Commission (SEC) has taken action against BarnBridge DAO, a decentralized autonomous organization, and its founders, Tyler Ward and Troy Murray. The charges revolve around the failure to register the offer and sale of structured crypto asset securities known as SMART Yield bonds. Additionally, BarnBridge’s operation of SMART Yield pools as unregistered investment companies has come under scrutiny. This article delves into the details of this case, shedding light on the consequences faced by the respondents.
BarnBridge’s Regulatory Challenge
BarnBridge DAO, a key player in the crypto space, has agreed to pay over $1.7 million in settlement charges to the SEC. This substantial sum serves as a stark reminder that regulatory compliance is imperative in the blockchain and cryptocurrency industry. Despite being a purportedly decentralized and autonomous entity, BarnBridge could not escape the reach of securities laws.
Unregistered SMART Yield Bonds
The heart of the matter lies in the unregistered sale of SMART Yield bonds by BarnBridge. These structured crypto asset securities were compared to traditional asset-backed securities and marketed extensively to the public. Investors had the option to choose between “Senior” and “Junior” SMART Yield bonds through BarnBridge’s user-friendly website application.
SMART Yield’s Investment Appeal
The SMART Yield bonds aimed to attract investors by promising to combine the safety and security of highly-rated traditional debt instruments with the potential for outsized returns through smart contract protocols. These bonds pooled crypto assets deposited by investors and utilized them to generate fixed or variable returns.
Investor Inflows and Fees
This attractive proposition succeeded in drawing more than $509 million in investments from individuals. BarnBridge, in turn, collected fees based on the size of an investor’s contribution and their selected yield. This substantial inflow of funds made the SEC’s investigation all the more crucial.
The SEC’s Division of Enforcement, led by Director Gurbir S. Grewal, took swift action in this case. Despite claims of decentralization and autonomy, the SEC emphasized that securities laws apply to all who wish to access the capital markets.
Settlement and Consequences
BarnBridge, Tyler Ward, and Troy Murray chose to settle the charges without admitting or denying the SEC’s findings. As part of the settlement, BarnBridge agreed to disgorge nearly $1.5 million in proceeds from the sales, while Ward and Murray each consented to pay a $125,000 civil penalty.
To prevent further violations of registration provisions, the respondents accepted cease-and-desist orders. These orders prohibit them from causing violations of the Securities Act of 1933 and the Investment Company Act of 1940. It is worth noting that Ward and Murray have initiated remedial actions as referenced in the SEC’s orders.
This case involving BarnBridge DAO serves as a clear indication that regulatory authorities are actively monitoring the cryptocurrency industry. Regardless of claims of decentralization and autonomy, compliance with securities laws is essential. The settlement reached in this case sends a message that adherence to regulatory standards is a fundamental requirement for anyone seeking to participate in the capital markets, even within the rapidly evolving world of blockchain and crypto assets.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.