SEC v. Rari Capital, Inc.; Jai Bhavnani; Jack Lipstone; and David Lucid, No. LR-26148, Central District of California (Oct. 2, 2024) — Press Release

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26148 / October 2, 2024 Securities and Exchange Commission v. Rari Capital, Inc., Jai Bhavnani, Jack Lipstone, and David Lucid, Case No. 2:24-cv-07967-PA-MAA (C.D. Cal. filed Sept. 18, 2024) SEC Obtains Final Judgments Against Rari Capital, Inc. and its Founders in Connection with Their Operation of Crypto Investment Platforms On September19, 2024, the U.S. District Court for the Central District of California entered final judgments against Rari Capital, Inc. and its three co-founders—Jai Bhavnani, Jack Lipstone, and David Lucid—for various violations of the securities offering registration and antifraud provisions of the Securities Act of 1933 and the broker registration provisions of the Securities Exchange Act of 1934. The Court ordered injunctive relief, equitable officer-and-director bars against the co-founders for a period of five years, and total monetary remedies of $63,567.51 against Bhavnani, $43,199.98 against Lipstone, and $45,208.92 against Lucid. According to the SEC’s complaint, Rari Capital offered two investment products, Earn pools and Fuse pools, which functioned like crypto asset investment funds, allowing investors to deposit crypto assets in lending pools, either managed by Rari (Earn) or user-created (Fuse), and earn returns from their investments. The SEC’s complaint alleged that investors in the pools received a token representing their interest in the pools and the right to receive profits earned by the pools. Certain Earn pool investors also received a governance token, called the Rari Governance Token, or RGT. By selling interests in these pools and RGT, the complaint alleged, Rari Capital conducted unregistered offers and sales of securities. Furthermore, the SEC’s complaint alleged that Rari Capital and its co-founders falsely told investors that the Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate. The SEC also alleged 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. Furthermore, the SEC alleged that Rari Capital and its co-founders engaged in unregistered broker activity through their operation of the Fuse platform. Without admitting or denying the allegations, Bhavnani and Lipstone each consented to the entry of a final judgment that: (1) permanently enjoined him from future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 15(a) of the Exchange Act; (2) enjoined him for a period of five years from participating in the issuance, purchase, offer, or sale of crypto assets offered and sold as securities, except for his own personal accounts; (3) equitably barred him for a period of five years from serving as an officer or director of a public company; (4) ordered the payment of disgorgement plus prejudgment interest; and (5) ordered the payment of a civil monetary penalty. Without admitting or denying the allegations, Lucid consented to the entry of a nearly identical final judgment, with the exception that it did not include an injunction against future violations of Section 17(a)(2) of the Securities Act. Finally, without admitting or denying the allegations, Rari Capital consented to the entry of a final judgment that permanently enjoined it from: (1) future violations of Sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act and Section 15(a) of the Exchange Act; and (2) participating in the issuance, purchase, offer, or sale of any securities. The SEC’s investigation was conducted by Madiha M. Zuberi and Erin E. Wilk of the Division of Enforcement’s Crypto Assets and Cyber Unit and was supervised by Jason H. Lee and David Zhou of the San Francisco Regional Office.

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 26148 / October 2, 2024 Securities and Exchange Commission v. Rari Capital, Inc., Jai Bhavnani, Jack Lipstone, and David Lucid, Case No. 2:24-cv-07967-PA-MAA (C.D. Cal. filed Sept. 18, 2024) SEC Obtains Final Judgments Against Rari Capital, Inc. and its Founders in Connection with Their Operation of Crypto Investment Platforms On September19, 2024, the U.S. District Court for the Central District of California entered final judgments against Rari Capital, Inc. and its three co-founders—Jai Bhavnani, Jack Lipstone, and David Lucid—for various violations of the securities offering registration and antifraud provisions of the Securities Act of 1933 and the broker registration provisions of the Securities Exchange Act of 1934. The Court ordered injunctive relief, equitable officer-and-director bars against the co-founders for a period of five years, and total monetary remedies of $63,567.51 against Bhavnani, $43,199.98 against Lipstone, and $45,208.92 against Lucid. According to the SEC’s complaint, Rari Capital offered two investment products, Earn pools and Fuse pools, which functioned like crypto asset investment funds, allowing investors to deposit crypto assets in lending pools, either managed by Rari (Earn) or user-created (Fuse), and earn returns from their investments. The SEC’s complaint alleged that investors in the pools received a token representing their interest in the pools and the right to receive profits earned by the pools. Certain Earn pool investors also received a governance token, called the Rari Governance Token, or RGT. By selling interests in these pools and RGT, the complaint alleged, Rari Capital conducted unregistered offers and sales of securities. Furthermore, the SEC’s complaint alleged that Rari Capital and its co-founders falsely told investors that the Earn pools would automatically and autonomously rebalance their crypto assets into the highest yield-generating opportunities available when, in reality, the rebalancing mechanism often required manual input, which Rari Capital sometimes failed to initiate. The SEC also alleged 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. Furthermore, the SEC alleged that Rari Capital and its co-founders engaged in unregistered broker activity through their operation of the Fuse platform. Without admitting or denying the allegations, Bhavnani and Lipstone each consented to the entry of a final judgment that: (1) permanently enjoined him from future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 15(a) of the Exchange Act; (2) enjoined him for a period of five years from participating in the issuance, purchase, offer, or sale of crypto assets offered and sold as securities, except for his own personal accounts; (3) equitably barred him for a period of five years from serving as an officer or director of a public company; (4) ordered the payment of disgorgement plus prejudgment interest; and (5) ordered the payment of a civil monetary penalty. Without admitting or denying the allegations, Lucid consented to the entry of a nearly identical final judgment, with the exception that it did not include an injunction against future violations of Section 17(a)(2) of the Securities Act. Finally, without admitting or denying the allegations, Rari Capital consented to the entry of a final judgment that permanently enjoined it from: (1) future violations of Sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act and Section 15(a) of the Exchange Act; and (2) participating in the issuance, purchase, offer, or sale of any securities. The SEC’s investigation was conducted by Madiha M. Zuberi and Erin E. Wilk of the Division of Enforcement’s Crypto Assets and Cyber Unit and was supervised by Jason H. Lee and David Zhou of the San Francisco Regional Office.