BarnBridge DAO Settles SEC Allegations for $1.7 Million, Shuts Down SMART Yield Product

BarnBridge DAO for SMART 2023-12-23 77

According to CoinDesk, crypto investments issuer BarnBridge DAO and its founders have agreed to pay $1.7 million to settle allegations from the Securities and Exchange Commission (SEC) that they offered illegal crypto securities to U.S. investors. The Ethereum-based crypto project will shut down its structured crypto investment product, SMART Yield, which BarnBridge had compared to 'highly rated debt instruments.' Financial regulators said SMART Yield failed to register as an investment company even as it amassed $509 million from crypto investors, including some from the U.S.

While the SEC often comes after crypto companies for purported securities violations, Friday's action is notable because it may be the first targeting a crypto startup that structured itself as a 'decentralized autonomous organization,' or DAO, in which the DAO held a public vote on how to respond. DAOs are businesses theoretically beholden to their tokenholders. In BarnBridge's case, anyone who owned its BOND token had a say in operations. Financial startups that fashion themselves as DAOs do not always register as companies. It's even rarer for such entities to view their products as securities that need to be registered with the SEC. This can prove problematic if their wares are open for U.S. investors, as was the case with BarnBridge.

According to the SEC, BarnBridge took no steps to prevent U.S. investors from buying into its SMART Yield product. It accused Ward and Murray of violating registration requirements and other violations. Both agreed to pay individual civil penalties of $125,000. BarnBridge DAO itself agreed to $1,457,000 in disgorgement to the SEC. In both cases, the parties did not admit to or deny the allegations. The minutia of SEC's allegations against SMART Yield raise questions about its broader stance on DeFi structures such as pools, lending, staking, and stablecoin returns, according to tweets from securities lawyer Drew Hinkes. But the outcome offers no sweeping answers. Because it's a settlement, it 'has no precedential value,' according to Hinkes.