The U.S. Securities and Exchange Commission settled charges with decentralized finance lending platform Rari Capital and its co-founders, alleging that it operated as an unregistered broker, offered unregistered securities offerings and misled investors.

Jai Bhavnani, Jack Lipstone and David Lucid, the platform's co-founders, also settled charges with the SEC, the regulator announced Wednesday.

Rari offered Earn and Fuse pools, "which functioned like crypto asset investment funds." It violated federal securities law by selling interests in both pools and selling the Rari Governance Token, the SEC alleged.

Rari's co-founders told their investors that the Earn pools automatically rebalanced its holdings "into the highest yield-generating opportunities," but this process was actually manual and Rari did not always rebalance the pools, the SEC said.

"The SEC also alleges that Rari Capital and its co-founders misleadingly touted the high annual percentage yield that investors would earn, but they failed to account for various fees and, ultimately, a significant percentage of Earn pool investors lost money on their investments," the agency said in a release.

Rari offered unregistered broker services through the Fuse platform, the SEC alleged.

As part of their settlement, Rari's co-founders agreed to fines and five-year officer-and-director bans, though these are subject to court approval. Neither the co-founders nor Rari admitted or denied the allegations in the settlement agreement, which is standard.

Rari Capital Infrastructure, which the SEC said took over from Rari in 2022, also settled unregistered securities and broker charges, agreeing to a cease-and-desist order.

"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, as we did here, and hold the individuals behind crypto products and platforms accountable when they harm investors and violate the federal securities laws," said SEC San Francisco Regional Office Director Monique Winkler in a statement.

Rari Capital merged with Fei protocol in 2021, and lost $80 million in a hack a few months later.

This was Rari's second hack, after losing $15 million in ether earlier in 2021.

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