SEC v. RARI CAPITAL, INC.; JAI BHAVNANI; JACK LIPSTONE; and DAVID LUCID, No. 2:24-cv-7967, Central District of California (Jan. 1, 2024) — Complaint

COMPLAINT
SEC
 v. RARI CAPITAL, INC. ET AL.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
ERIN E. WILK (Cal. Bar No. 310214)
Email:  [email protected]
MADIHA M. ZUBERI (Cal. Bar No. 326962)
Email:  [email protected]
DAVID ZHOU (NY Bar No. 4926523)
Email:  [email protected]
Attorneys for Plaintiff
Securities and Exchange Commission
Monique C. Winkler, Regional Director
Jason H. Lee, Associate Regional Director
44 Montgomery Street, Suite 700
San Francisco, CA 94104
(415) 705-2500 (Telephone)
(415) 705-2501 (Facsimile)
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
          vs.
RARI CAPITAL, INC.; JAI BHAVNANI;
JACK LIPSTONE; and DAVID LUCID,
Defendants.
Case No. 2:24-cv-7967
COMPLAINT
UNITED STATES DISTRICT COURT
CENTRAL DIS
TRICT OF CALIFORNIA
WESTERN DIVISION

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
In support of its Complaint against Defendants Rari Capital, Inc. (“Rari
Capital”), Jai Bhavnani, Jack Lipstone, and David Lucid, Plaintiff Securities and
Exchange Commission (“SEC”) alleges as follows:
JURISDICTION AND VENUE
1. The  Court  has  jurisdiction  over  this  action  pursuant  to  28  U.S.C.  §
1331,  Sections  20(b),  20(d),  and  22(a)  of  the  Securities  Act  of  1933  (“Securities
Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)], and Sections 21(d), 21(e), and 27(a)
of the Securities Exchange Act of 1934 (“Exchange  Act”)  [15  U.S.C.  §§  78u(d),
78(u)(e), and 78aa].
2. Defendants  have,  directly  or  indirectly,  made  use  of  the  means  or
instrumentalities of interstate commerce in connection with the acts, practices, and
courses of business alleged in this Complaint.
3. Venue  is  proper  in  this  district  pursuant  to  Section  22(a)  of  the
Securities  Act,  15  U.S.C.  §  77v(a),  and  Section  27(a)  of  the  Exchange  Act,  15
U.S.C. § 78aa(a), because certain of the transactions, acts, practices and courses of
conduct  constituting  violations  of  the  federal  securities  laws  occurred  within  this
district. In addition, venue is proper in this district because Defendants Bhavnani
and Lipstone reside in this district.
SUMMARY
4. In 2020, Bhavnani, Lipstone, and Lucid (together the “co-founders”)
created Rari Capital (together with the co-founders, “Defendants”) and began
developing Rari Capital’s protocol, a so-called decentralized finance (“DeFi”)
project that provided financial services on the Ethereum blockchain and utilized
blockchain-based smart contracts (i.e., programs run on a blockchain) to facilitate
investment opportunities for investors. As part of the protocol, the co-founders
developed two primary investment products called Earn pools and Fuse pools
(together, the “Rari protocol”).

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
5. This Complaint details multiple violations of the federal securities
laws that stemmed from Defendants’ creation and operation of the Earn pools and
Fuse pools. First, Rari Capital violated Sections 5(a) and 5(c) of the Securities Act
because it offered and sold securities in the form of interests in the Earn pools
(represented by a crypto assets in the form of ERC-20 tokens that had various
names including the “Rari Fund Token”), purported governance crypto assets
called Rari Governance Tokens (“RGT”), and interests in the Fuse pools
(represented by a crypto asset called the “fToken”) without registering any of
those offers and sales and without qualifying for any exemptions from such
registration requirements. Second, Defendants violated Section 17(a)(3) of the
Securities Act, and Rari Capital, Bhavnani, and Lipstone also violated Section
17(a)(2) of the Securities Act, by making materially false and misleading
representations about the Earn product to investors. Third, Defendants violated
Section 15(a) of the Exchange Act by engaging in unregistered broker activity in
connection with the Fuse pools.
6. The Earn product, which first began receiving investor deposits in or
around July 2020, functioned like a crypto asset investment fund where investors
deposited crypto assets into initially one investment pool and Rari Capital then
deployed the pooled assets into investment opportunities at third-party crypto
asset lending platforms to seek returns for investors (referred to as “yield
farming” in the DeFi community). After the Earn product’s initial release,
Defendants created additional investment pools with varying risk profiles and
continued to expand investment opportunities for these pools. In return for their
investment in an Earn pool, investors received ERC-20 tokens, such as Rari Fund
Tokens, that could be traded on secondary crypto asset trading platforms, and that
represented their pro rata shares of the pool’s assets and through which they
earned a pro rata share of the interest earned by the pool. For a limited period,
Earn pool investors also received a distribution of RGT, Rari Capital’s purported

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
governance crypto asset. At its height, investors invested at least $95 million of
crypto assets into Rari Capital’s Earn product. Rari Capital publicly advertised
interests in the Earn pools and the RGT distribution, both of which were
investment contracts and therefore securities, but did not register those offers and
sales with the SEC even though there were no applicable exemptions from
registration.
7. Defendants also made material misstatements to investors, falsely
claiming that the Earn pools, through a Rari Capital developed smart-contract
mechanism called the “Yield Aggregator,” automatically and autonomously
rebalanced pool assets between investment opportunities in search of the highest
yields. Although Rari Capital scripted the Yield Aggregator to automatically and
autonomously rebalance assets, in practice the Yield Aggregator often failed to
operate and required manual prompting from Rari Capital employees to run its
rebalancing mechanism. Additionally, Defendants materially misled investors by
touting high interest rate returns of the Earn pools without factoring in the fees
charged by Rari Capital and other transaction costs, which significantly reduced
the returns paid to investors. About a third of investors in the Earn pools lost
money because blockchain transaction fees and other platform fees exceeded any
returns on their investments.
8. In or around March 2021, Defendants released what became Rari
Capital’s most popular product, the borrowing and lending platform called Fuse,
which at its height held crypto assets worth at least $1 billion USD. The Fuse
platform allowed individual users (or pool creators) to create unique pools to
facilitate the lending and borrowing of crypto assets, including crypto assets
offered and sold as securities. The Fuse pools were based on a set of smart
contracts developed and controlled by Defendants that were deployed and run on
the Ethereum blockchain. Defendants also provided a front-end user interface that
allowed users to interact with the platform. Investors deposited crypto assets into

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
specific pools and received an fToken, tradeable on secondary crypto asset trading
platforms, representing their pro rata interests in those pools’ assets and through
which they earned their pro rata interests in those pools’ earnings. A portion of
that paid interest was also allocated to the Rari protocol as a performance fee,
with the remainder going to investors on a pro rata basis. The interest earned by
investors depended on the underlying pool of assets and how much that pool had
generated by lending its crypto assets. Rari Capital advertised Fuse’s services
through Rari Capital’s public website, social media channels, and direct
communications, but did not register the offer or sale of interests in the Fuse
pools, which constituted investment contracts and thus securities, with the SEC
even though there were no applicable exemptions from registration.
9. Defendants also operated as unregistered brokers through the Fuse
platform, which engaged in transactions for the accounts of Fuse users involving
certain crypto assets offered and sold as securities, including MATIC, LINK,
FTM, UST, and RGT. The underlying smart contracts, which, as noted above,
were developed and controlled by Defendants through at least early 2022,
received transaction instructions from users to move crypto assets offered and
sold as securities into and out of certain Fuse pools, and the smart contracts
developed and controlled by Defendants carried out those instructions.
Defendants also created and administered several of the larger Fuse pools, one of
which included at least one crypto asset offered and sold as a security. In addition,
the Rari Capital team programmed the Fuse platform to assign a letter-graded
“Rari Safety Score” to the Fuse pools based on a risk assessment of each pool.
Defendants generated revenue for the Rari protocol by charging a performance-
based fee of approximately 10 percent of the interest earned from depositing and
borrowing activity in each pool.
10. Ultimately, operations of the Fuse platform were suspended after an
unknown third party was able to drain over $80 million of users’ crypto assets

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
from pools connected to the platform through an exploit of a design vulnerability
in the smart contracts’ coding.
11. The SEC seeks Final Judgments that: (a) permanently enjoin
Defendants from violating the federal securities laws and rules set forth in this
Complaint; (b) permanently enjoin Rari Capital from participating in the issuance,
purchase, offer, or sale of any securities; (c) permanently enjoin Bhavnani,
Lipstone, and Lucid from participating in the issuance, purchase, offer, or sale of
any crypto assets offered and sold as securities; (d) order Bhavnani, Lipstone, and
Lucid to disgorge all ill-gotten gains they received as a result of the alleged
violations pursuant to Sections 21(d)(3), (5), and (7) of the Exchange Act [15
U.S.C. §§ 78u(d)(5), (d)(3), and (d)(7)], and to pay prejudgment interest thereon;
(e) order Bhavnani, Lipstone, and Lucid to pay civil money penalties pursuant to
Section 20(d) of the Securities Act [15 U.S.C § 77t(d)] and Section 21(d)(3) of the
Exchange Act [15 U.S.C. § 78u(d)(3)]; and (f) order Bhavnani, Lipstone, and
Lucid barred from serving as an officer or director of a public securities issuer
pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].
DEFENDANTS
12. Rari Capital, Inc. is a Delaware corporation created in June 2020 by
Bhavnani, Lipstone, and Lucid. Rari Capital’s operations were principally based
in Los Angeles, California. Rari Capital was the relevant legal entity listed in the
Terms of Service for the user interface facilitating the Earn and Fuse platforms.
Rari Capital has never been registered with the SEC in any capacity and has never
had any securities registered with the SEC.
13. Jai Bhavnani, currently age 22, resides in Los Angeles, California.
Bhavnani co-founded Rari Capital and served as the company’s Chief Executive
Officer. Since Rari Capital’s inception, Bhavnani was responsible for key
decision making and investor communications, and was involved in marketing

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
efforts for the Rari protocol. Bhavnani has never been registered with the SEC in
any capacity or associated with any registered broker-dealers.
14. Jack Lipstone, currently age 23, resides in Los Angeles, California.
Lipstone co-founded Rari Capital and served as the company’s Chief Operating
Officer. Lipstone was largely responsible for business development, marketing
efforts, and community management for the Rari protocol. Lipstone has never
been registered with the SEC in any capacity or associated with any registered
broker-dealers.
15. David Lucid, currently age 23, resides in Austin, Texas. Lucid co-
founded Rari Capital and served as the company’s Chief Technology Officer.
Lucid was primarily responsible for developing the smart contracts underlying the
Rari protocol. Lucid has never been registered with the SEC in any capacity or
associated with any registered broker-dealers.
RELATED ENTITY
16. Rari Capital Infrastructure LLC (“Rari Capital Infrastructure”) is
a Delaware limited liability company that was formed in March 2022 to facilitate
development of, among other things, the Fuse platform, following a leadership
change within the Rari protocol. Rari Capital Infrastructure thereafter wound
down operations of the Rari protocol after an exploit of the Fuse platform in May
2022 resulted in the loss of over $80 million of investors’ assets. Rari Capital
Infrastructure has never been registered with the SEC in any capacity and has
never had any securities registered with the SEC.
BACKGROUND ON CRYPTO ASSETS
17. The term “crypto asset” generally refers to an asset issued and/or
transferred using distributed ledger or blockchain technology, including assets

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
sometimes referred to as “cryptocurrencies,” “digital assets,” “virtual currencies,”
“digital coins,” and “digital tokens.”
18. A blockchain or distributed ledger is a peer-to-peer database spread
across a network of computers that records all transactions in theoretically
unchangeable, digitally recorded data packages, referred to as “blocks.” The
system relies on cryptographic techniques for secure recording of transactions.
19. A blockchain “protocol” is a code, software, or algorithm that
governs how a blockchain, or a feature of a blockchain, operates.
20. A “wallet” is a piece of hardware or software on which crypto asset
owners typically store the cryptographic key information providing them control
over their crypto assets. Crypto wallets offer a method to store and manage
critical information about crypto assets, i.e., cryptographic information necessary
to identify and transfer those assets.
21. A “smart contract” is a software or code that, based on
programmable conditions, is deployed and run on a blockchain.
22. On July 25, 2017, the SEC issued the Report of Investigation
Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,
advising “those who would use . . . distributed ledger or blockchain-enabled
means for capital raising[] to take appropriate steps to ensure compliance with the
U.S. federal securities laws,” and finding that the offering of crypto assets at issue
in that report were offered and sold as investment contracts and, thus, securities.
FACTUAL ALLEGATIONS
A. Rari Capital Engaged in the Unregistered Offer and Sale of Interests in
the Earn Pools and RGT as Securities 
i. Interests in the Earn Pools
23. In 2020, Defendants began developing the Earn product, which was
the first investment product for the Rari protocol. Earn functioned like a crypto
asset investment fund that utilized blockchain-based smart contracts and other

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
coding to receive and deploy investors’ assets. Rari Capital’s initial public
advertisements described the Earn product as a “website where you can deposit
your crypto-assets and we will automatically rebalance it into the highest-yielding
stable opportunities.”
24. Defendants released one Earn pool in July 2020, and then released an
updated version of the product in October 2020 that expanded the offering to three
investment pools with varying risk profiles. However, all the Earn pools operated
in the same way. Rari Capital developed a smart-contract mechanism for the Earn
pools, referred to as the Yield Aggregator, that purported to move new investor
assets into investment opportunities and rebalance existing pools of assets among
different third-party investment opportunities to maximize returns. Defendants
claimed that the Yield Aggregator performed this movement of assets and
rebalancing automatically and autonomously. The investment opportunities
consisted primarily of investments into third-party crypto asset lending platforms.
Based on an algorithm run through computer code, the Yield Aggregator
purportedly would determine whether it was economical to move invested assets
into other investment opportunities. Over time, the co-founders, at times with
input from the community of users or supporters, expanded the options for the
third-party platforms to which the Earn pools, through the Yield Aggregator,
could deploy investors’ assets.
25. In return for depositing crypto assets into an Earn pool, investors
received an ERC-20 token, initially the Rari Fund Token, tradeable on secondary
crypto asset trading platforms, that represented each investor’s interest in the
specific investment pool and right to any profits that were shared pro rata with
other token holders.
26. Rari Capital disclosed that the Rari protocol charged investors a
withdrawal fee. In addition, Rari Capital disclosed that it charged a performance
fee on Earn pool profits that was originally 20% and was later updated to 9.5% of

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
such profits. The fees, paid in crypto assets, were stored in the Rari protocol. A
portion of such fees were distributed to wallets controlled by the co-founders and
others to support further protocol development and cover expenses, including one
wallet, known as the Rari Capital Treasury, that received approximately $370,000
in fees from the Earn pools between July 2020 and September 2021.
27. Rari Capital marketed interests in the Earn pools to investors through
direct communications with investors, a public website for Rari Capital, public
interviews, and through social media channels including Twitter, Telegram,
Discord, and Medium, among others. Rari Capital advertised the pools’ ability to
maximize yield for investors and make investing in DeFi easy for anyone. Rari
Capital further publicly advertised the annual percentage yield, or “APY,” for the
Earn pools, often highlighting particularly high APYs on social media platforms
such as Twitter.
28. An investor’s purchase of an interest in these opportunities—which
occurred by the investor depositing money, in the form of crypto assets, into an
Earn pool and receiving a token that evidenced the investor’s interest in the pool
and a right to receive a pro rata share of the interest earned through the pool’s
activity—constituted the offer and sale of investment contracts and thus securities.
29. Investors in the Earn product invested in a common enterprise with
other investors and with Rari Capital. After directing the crypto assets into the
pools, the investors no longer controlled those assets. Investors’ crypto assets
were then pooled by the smart contracts. Investors depended on Rari Capital to
develop algorithms, smart contracts, and downstream lending opportunities to
invest their assets for a return, as well as the efforts of Rari Capital and the co-
founders to further improve the Earn product, including by generating better
investment opportunities. For example, an Earn pool’s annual percentage yield
depended on both the Yield Aggregator’s ability to invest and rebalance the assets
in that pool into higher yield generating investment opportunities, and the Rari

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Capital team’s ability to create more investment strategies with higher returns.
Because Rari Capital did not segregate the pooled assets by investor (but only by
type of crypto asset), each investor’s fortunes were tied to the fortunes of other
investors, and each investor profited or suffered losses equally and in proportion
to their pro rata investments in the Earn pools. In addition, because Rari Capital
directly shared in the returns investors made by receiving performance fees on
Earn pool profits, the Earn pool investors’ fortunes were also linked to those of
Rari Capital. As stated on Rari Capital’s website in or around October 2020,
“[t]he more money you make, the more money we make.”
30. Through its public statements, and given the economic reality of the
Earn pools, Rari Capital invited Earn pool investors to reasonably expect that they
would earn profits derived from the efforts of Rari Capital and others.
ii. RGT
31. In October 2020, in conjunction with the expansion of the Earn
product to three investment pools, Rari Capital launched a so-called “liquidity
mining” program that offered RGT to investors who invested crypto assets in one
or more of the Earn pools during a 60-day period. The program was intended to
encourage new and existing investors to make investments in the Earn pools.
Investors also continued to receive Rari Fund Tokens as well as other ERC-20
tokens. Under the program, Rari Capital planned to release 87.5% of the RGT to
investors in the Earn pools and retain 12.5% of the tokens to compensate the Rari
Capital team, as well as certain advisors to Rari Capital.
32. Prior to the October 2020 launch, as part of the RGT distribution,
Rari Capital offered a “Launch Partner Program” to solicit commitments of at
least $100,000 USD to invest in the Earn pools from venture capital firms and
other high net-worth investors. In return, investors would receive pro rata interests
in the profits of the Earn pools and a proportional distribution of RGT. Rari
Capital sent emails to investors and potential investors explaining that their

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
investments would start generating returns right away because their crypto assets
would be invested by the Yield Aggregator, and because the investors would
receive RGT. The Launch Partner Program functioned to guarantee revenues,
from withdrawal fees and performance fees, that Rari Capital and its co-founders
could use to continue developing and growing the Rari protocol, and also enabled
Rari Capital to use RGT to fund its additional growth. Indeed, Rari Capital
retained 12.5% of the RGT to use as compensation and benefited, together with
investors, from any increases to RGT’s price. 
33. As with the Earn pools, Rari Capital marketed RGT as an investment
opportunity into its efforts to grow the Rari Capital platform. RGT purported to
give holders the ability to vote on certain governance decisions affecting the Earn
pools, such as upgrades to the protocol and changes to fees. However, Rari
Capital invited RGT investors to expect RGT to increase in value based on Rari
Capital’s efforts to develop and increase usage of the Rari Capital platform, and
the expectation that RGT would be tradeable on secondary crypto asset trading
platforms. Although RGT did not entitle holders to pro rata shares of the Earn
pool profits, Rari Capital publicly explained that 70% of the fees earned from the
Earn pools would be used to buy back and burn RGT, and one of Rari Capital’s
public posts on Medium explained that RGT “will be burned on every cent made
by the protocol . . . decreasing the total supply of the token as the protocol
succeeds.” According to Rari Capital, a declining supply of RGT would cause the
price of RGT in the secondary market to increase to the benefit of RGT holders
and investors. Investors shared proportionally in any increases in RGT’s value
because the amounts of RGT they received were proportional to the amounts they
invested in the Earn pools. Furthermore, Rari Capital made clear to investors that
it was working to develop the secondary trading market for RGT through efforts
to make RGT available for trading on secondary crypto asset trading platforms.

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
34. RGT was offered and sold as an investment contract. Investors who
invested in RGT expected the value of RGT to increase based on the efforts of
Rari Capital and others.
iii. Rari Capital Failed to Register the Offer and Sale of Interests in
the Earn Product and RGT with the SEC
35. Rari Capital made use of various means and instrumentalities of
interstate commerce to offer and sell interests in the Earn pools and distribute
RGT by, among other things, engaging in general solicitation through the Rari
Capital website and through social media channels. Rari Capital was also
involved in many direct communications with investors, including through email,
Telegram, and telephone calls.
36. Rari Capital never filed a registration statement with the SEC for its
offers and sales of interests in the Earn pools and RGT. No exemption from
registration applied.
37. In total, investors invested crypto assets worth millions of dollars in
the Earn pools through approximately 1,900 unique addresses.
38. Defendants transferred approximately $370,000 in Earn pool fees to
the Rari Capital Treasury. The co-founders, in turn, took payments from the
crypto assets in the Rari Capital Treasury, primarily to reimburse them for certain
costs incurred in starting Rari Capital.
39. With respect to RGT, Rari Capital initially minted approximately 10
million RGT, with a reserve of 12.5% for the Rari Capital team, but all of which
was eventually distributed to users of the Earn pools. RGT was available for
trading on numerous secondary crypto asset trading platforms, including Binance,
Coinbase, and Uniswap.

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
B. Defendants Materially Misrepresented the Operations of the Earn Pool
Product
40. Defendants claimed to investors that a key feature of the Earn pools
was that they were balanced by the Yield Aggregator, a set of blockchain-based
smart contracts and programming that operated autonomously and continuously to
move invested assets into investment opportunities, and rebalance those assets
among investment opportunities to obtain the advertised returns for investors.
Accordingly, Rari Capital, Bhavnani, and Lipstone specifically marketed the Earn
pools as functioning “automatically” and “autonomously.”
41. Although Rari Capital scripted the Yield Aggregator to automatically
and autonomously rebalance assets, in practice the rebalancing mechanism often
failed to operate at all and required manual input from the Rari Capital team, such
as from Lucid, to run the rebalancer code. There were multiple times when the
rebalancing mechanism failed and the Rari Capital team did not immediately
manually run the rebalancer code, and, as a result, as one example, the
rebalancing occurred days after the deposit of investor assets. Contrary to the false
and misleading representations in Defendants’ marketing materials, investor
assets in the Earn pools were not always automatically or continuously rebalanced
into higher-yielding strategies. Moreover, by manually turning on the Yield
Aggregator when the rebalancing mechanism failed, Defendants created the false
and misleading impression that the Yield Aggregator did in fact operate on its
own at all times. The misrepresentations about the rebalancing mechanism of the
Earn pools were material to investors in the Earn pools because a reasonable
investor would consider the operation of the rebalancing mechanism an important
fact in evaluating the performance of the Earn pools and considering a potential
investment.
42. In addition, Rari Capital’s marketing materials sometimes
misleadingly touted the high APYs of the Earn pools without factoring in the

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
impact of the fees collected by Rari Capital and other costs. Those fees and costs
had the effect of significantly reducing the actual returns paid to investors. Indeed,
approximately 33% of investors lost money on their investments in the Earn pools
as a result of the Rari Capital fees and other costs that investors incurred. These
misleading statements about the supposedly high APYs of the Earn pools were
material to investors in the Earn pools.
C. Rari Capital Engaged in the Unregistered Offer and Sale of Interests in
the Fuse Pools, Which Were Offered and Sold as Securities
43. Defendants created and launched the Fuse platform in March 2021.
The Fuse platform allowed individual users to create unique pools to facilitate the
depositing and borrowing of crypto assets, including crypto assets offered and
sold as securities. The Fuse platform enabled pool creators to customize the
depositing and borrowing parameters for the pools, such as the types of crypto
assets that could be deposited and lent, fee amounts, interest rate curves, and
collateral requirements. After creating a pool on the Fuse platform, the pool
creator had the option of retaining administrator rights to alter the parameters for
the given pool, sometimes referred to as a “liquidity pool.”
44. The Fuse platform was based on a set of smart contracts developed
by Defendants and others on the Rari Capital team that were deployed and run on
the Ethereum blockchain, and that owned the crypto assets deposited by investors.
Defendants also developed and provided a web-based user interface that enabled
users to access and interact with the smart contracts underlying the Fuse platform.
Through the Fuse platform, users could either deposit crypto assets into a pool
and earn their respective share of interest on lending and borrowing activity in
that pool, or, after depositing crypto assets as collateral, borrow from a pool by
withdrawing other crypto assets. In each specific Fuse pool, the smart contracts
pooled together the crypto assets deposited by investors of that pool and made
those crypto assets available for borrowing. Users who borrowed crypto assets

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
paid interest, which funded returns to the investors who deposited the crypto
assets in the pool. Investors who deposited the crypto assets received an fToken,
an ERC-20 token tradeable on secondary crypto asset trading platforms, that
evidenced their interest in their specific Fuse pool and their right to receive a pro
rata share of the pool’s interest earnings.
45. Through the smart contracts developed by Defendants, Fuse received
depositing and borrowing transaction instructions from users and executed those
instructions, if the conditions for such requests were met within a given Fuse pool.
Defendants, through permissions programmed into the Fuse platform’s smart
contracts, maintained the ability to shut down the platform, replace the platform’s
underlying smart contracts, and revoke the pool creators’ administrator rights.
46. Through Rari Capital’s public website, social media channels, and
direct communications, Rari Capital solicited users to deposit crypto assets into
and borrow crypto assets from the pools on the Fuse platform. Rari Capital also
promoted Fuse and specific Fuse pools by touting the purportedly high APYs
associated with certain pools.
47. Based on the facts set forth above, an investor’s purchase of an
interest in these opportunities—which occurred by the investor depositing money,
in the form of crypto assets, into a Fuse pool and receiving a token that evidenced
the investor’s interest in the pool and a right to receive a pro rata share of the
interest earned through the pool’s activity—constituted the offer and sale of
investment contracts and thus securities.
48. Investors tendered money, in the form of crypto assets, to the Fuse
platform to participate in the Fuse pools. Investors’ crypto assets were then pooled
by smart contracts and were made available for borrowing. Users who borrowed
crypto assets paid interest to the pools they borrowed from. A portion of those
interest payments, in turn, constituted the returns that were paid to Fuse pool
investors who had deposited their crypto assets in the pools, while another portion

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
of the interest payments was earned by the Rari protocol in the form of
performance fees. The returns earned by Fuse pool investors arose from the
activities of the pools, which were facilitated by the smart contracts, in lending the
crypto assets and receiving interest from that lending activity. In this way, each
pool investor’s fortunes were tied to the fortunes of the pool’s other investors. In
addition, because Rari Capital received some of the interest paid by borrowers to
the Rari protocol, the Fuse pool investors’ fortunes were also linked to those of
Rari Capital.
49. Through its public statements and the economic structure of the Fuse
pools, Rari Capital invited Fuse pool investors to reasonably expect that they
would earn profits derived from the efforts of Rari Capital and others.
50. Rari Capital made use of various means and instrumentalities of
interstate commerce to offer and sell interests in the Fuse pools by, among other
things, engaging in general solicitation through the Rari Capital website and
through social media channels. Rari Capital was also involved in many direct
communications with investors, including through email, Telegram, and telephone
calls, to offer and sell the Fuse pool interests.
51. Rari Capital never filed a registration statement with the SEC for its
offers and sales of interests in the Fuse pools. No exemption from registration
applied.
D. Defendants Acted as Unregistered Brokers 
52. For the pools to function, Fuse, through the smart contracts created
by Defendants, received depositing and borrowing transaction instructions from
users and carried out those instructions, if the conditions for such requests were
met within a given Fuse pool. Some of the transactions that Fuse effected for the
accounts of its users involved certain crypto assets offered and sold as investment
contracts, as defined by the Supreme Court case SEC v. W.J. Howey Co., 328 U.S.
293 (1946), and thus securities.

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
53. Through Rari Capital’s public website, social media channels, and
direct communications, Defendants solicited users to deposit crypto assets into,
and borrow crypto assets from, the pools on the Fuse platform. Defendants also
promoted Fuse and specific Fuse pools by touting the purportedly high APYs
associated with certain pools.
54. In addition, Defendants engaged in certain services to support and
encourage depositing and borrowing on the Fuse platform. For example, the Rari
Capital team programmed the Fuse platform to assign a “Rari Safety Score,”
graded from A to F, to each Fuse pool that purported to provide a risk assessment
of each pool. Fuse users could view these “Rari Safety Scores” on both the
platform’s user interface and Rari Capital’s website. Defendants also created and
administered several of the larger Fuse pools.
55. For these services, the Rari protocol charged a performance-based
fee of approximately 10 percent on the interest earned in each Fuse pool. Interest
earned in each pool depended on the interest rate curve selected by the pool
creator and fluctuated based on the depositing and borrowing transactions within
the pool. A smart contract developed by Defendants automatically calculated
these fees, and once accrued, Defendants maintained the authority to collect them.
Defendants at times exercised this authority.
56. Defendants were never associated with a broker and never registered
as brokers with the SEC, and did not operate pursuant to any exception or
exemption from registration.
57. Starting in December 2021, the co-founders of Rari Capital took less
active roles in developing the Fuse platform. In March 2022, certain individuals
created Rari Capital Infrastructure LLC separately from Rari Capital and its co-
founders to operate and further develop the Fuse platform. This change in
leadership was announced in June 2022. Rari Capital Infrastructure continued to

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
solicit users over the internet to lend and borrow crypto assets on the Fuse
platform.
58. At Fuse’s peak, the smart contracts for the Fuse platform held crypto
assets purportedly having a market value of at least $1 billion. Over the life of the
Fuse platform, approximately 180 Fuse pools were created and over 10,000 users
used the platform at one time or another.
FIRST CLAIM FOR RELIEF
(Violations of Securities Act Sections 5(a) and 5(c) against Rari Capital)
59. The SEC realleges and incorporates by reference Paragraphs 1
through 58 as if fully set forth herein.
60. By engaging in the conduct described above, Defendant Rari Capital,
directly or indirectly, made use of the means or instruments of transportation or
communication in interstate commerce, or of the mails, to offer to sell or to sell
securities through the use or medium of any prospectus or otherwise, or carried or
caused to be carried through the mails or in interstate commerce, by means or
instruments of transportation, securities for the purpose of sale or for delivery
after sale, when no registration statement had been filed or was in effect as to such
securities, and when no exemption from registration was applicable.
61. By engaging in the conduct described above, Defendant Rari Capital
has violated and, unless restrained and enjoined, will continue to violate Securities
Act Sections 5(a) and 5(c) [15 U.S.C. §§ 77e(a) & 77e(c)].
SECOND CLAIM FOR RELIEF
(Violations of Securities Act Section 17(a)(2) against Rari Capital, Bhavnani,
and Lipstone)
62. The SEC realleges and incorporates by reference Paragraphs 1
through 58 as if fully set forth herein.
63. Defendants Rari Capital, Bhavnani, and Lipstone, by engaging in the
conduct described above, directly or indirectly, in the offer or sale of securities,

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
by use of any means or instruments of transportation or communication in
interstate commerce or by use of the mails, obtained money or property by means
of untrue statements of material fact or by omitting to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
64. By reason of the foregoing, Defendants Rari Capital, Bhavnani, and
Lipstone violated and, unless restrained and enjoined, will continue to violate
Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)].
THIRD CLAIM FOR RELIEF
(Violations of Securities Act Section 17(a)(3) against Rari Capital, Bhavnani,
Lipstone, and Lucid)
65. The SEC realleges and incorporates by reference Paragraphs 1
through 58 as if fully set forth herein.
66. Defendants Rari Capital, Bhavnani, Lipstone, and Lucid, by
engaging in the conduct described above, directly or indirectly, in the offer or sale
of securities, by use of any means or instruments of transportation or
communication in interstate commerce or by use of the mails, engaged in
transactions, practices, or courses of business which operated or would operate as
a fraud or deceit upon purchasers.
67. By reason of the foregoing, Defendants Rari Capital, Bhavnani,
Lipstone, and Lucid violated and, unless restrained and enjoined, will continue to
violate Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)].

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
FOURTH CLAIM FOR RELIEF
(Violations of Exchange Act Section 15(a) against Rari Capital, Bhavnani,
Lipstone, and Lucid)
68. The SEC realleges and incorporates by reference Paragraphs 1
through 58 as if fully set forth herein.
69. At all relevant times, by engaging in the conduct described above,
Defendants Rari Capital, Bhavnani, Lipstone, and Lucid, and each of them,
directly or indirectly, made use of the mails and the means and instrumentalities
of interstate commerce to effect transactions in, or to induce or attempt to induce
the purchase or sale of, securities, without registering with the SEC as a broker or
dealer in accordance with Section 15(b) of the Exchange Act [15 U.S.C. §
78o(b)], and without complying with any exemptions promulgated pursuant to
Section 15(a)(2) of the Exchange Act [15 U.S.C. § 78o(a)(2)].
70. By engaging in the conduct described above, Defendants Rari
Capital, Bhavnani, Lipstone, and Lucid, directly or indirectly, violated and, unless
restrained and enjoined, will continue to violate Section 15(a) of the Exchange
Act [15 U.S.C. § 78o(a)].
PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that the Court enter Final
Judgments:
(a) Permanently enjoining Defendant Rari Capital, and those persons in
active concert or participation with it, who receive actual notice of the judgments
by personal service or otherwise, and each of them, from violating Sections 5(a),
5(c), 17(a)(2), and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c),
77q(a)(2), and 77q(a)(3)] and Section 15(a) of the Exchange Act [15 U.S.C. §
78o(a)];
(b) Permanently enjoining Defendants Bhavnani and Lipstone, and those
persons in active concert or participation with each of them, who receive actual

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
notice of the judgments by personal service or otherwise, and each of them, from
violating Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§
77q(a)(2) and 77q(a)(3)] and Section 15(a) of the Exchange Act [15 U.S.C. §
78o(a)];
(c) Permanently enjoining Defendant Lucid, and those persons in active
concert or participation with him, who receive actual notice of the judgments by
personal service or otherwise, and each of them, from violating Section 17(a)(3)
of the Securities Act [15 U.S.C. § 77q(a)(3)] and Section 15(a) of the Exchange
Act [15 U.S.C. § 78o(a)];
(d) Permanently enjoining Defendant Rari Capital from directly or
indirectly, including, but not limited to, through any entity owned or controlled by
Rari Capital, participating in the issuance, purchase, offer, or sale of any
securities;
(e) Permanently enjoining Defendants Bhavnani, Lipstone, and Lucid
from directly or indirectly, including, but not limited to, through any entity owned
or controlled by Bhavnani, Lipstone, or Lucid, participating in the issuance,
purchase, offer, or sale of any crypto assets offered and sold as securities;
provided however, that such injunction shall not prevent Bhavnani, Lipstone, and
Lucid from purchasing or selling securities for their own personal accounts;
(f) Ordering that Defendants Bhavnani, Lipstone, and Lucid be barred
from serving as an officer or director of a public issuer pursuant to Section
21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)];
(g) Ordering Defendants Bhavnani, Lipstone, and Lucid to disgorge all
ill-gotten gains received as a result of their unlawful conduct plus prejudgment
interest thereon pursuant to Sections 21(d)(3), 21(d)(5), and 21(d)(7) of the
Exchange Act [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)];

COMPLAINT
SE
C v. RARI CAPITAL, INC. ET AL.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(h) Ordering Defendants Bhavnani, Lipstone, and Lucid to pay civil
penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and
Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];
(i) Retaining jurisdiction of this action in accordance with the principles
of equity and the Federal Rules of Civil Procedure in order to implement and
carry out the terms of all orders and decrees that may be entered, or to entertain
any suitable application or motion for additional relief within the jurisdiction of
this Court; and
(j) Granting such other relief to the SEC as the Court may deem just and
proper.

Dated:  September 18, 2024  /s/ Madiha M. Zuberi_____________
      MADIHA M. ZUBERI
      ERIN E. WILK
      Attorneys for Plaintiff
                                                            Securities          and          Exchange          Commission

COMPLAINT  
SEC v. RARI CAPITAL, INC. ET AL. 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

ERIN E. WILK (Cal. Bar No. 310214) 
Email:  [email protected] 
MADIHA M. ZUBERI (Cal. Bar No. 326962) 
Email:  [email protected] 
DAVID ZHOU (NY Bar No. 4926523) 
Email:  [email protected] 

Attorneys for Plaintiff 
Securities and Exchange Commission 
Monique C. Winkler, Regional Director 
Jason H. Lee, Associate Regional Director 
44 Montgomery Street, Suite 700 
San Francisco, CA 94104 
(415) 705-2500 (Telephone)
(415) 705-2501 (Facsimile)

SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 

 vs. 

RARI CAPITAL, INC.; JAI BHAVNANI; 
JACK LIPSTONE; and DAVID LUCID, 

Defendants. 

Case No. 2:24-cv-7967  

COMPLAINT 

UNITED STATES DISTRICT COURT 

CENTRAL DISTRICT OF CALIFORNIA 

WESTERN DIVISION 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 1 of 23   Page ID #:1



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -1-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

In support of its Complaint against Defendants Rari Capital, Inc. (“Rari 

Capital”), Jai Bhavnani, Jack Lipstone, and David Lucid, Plaintiff Securities and 

Exchange Commission (“SEC”) alleges as follows: 

JURISDICTION AND VENUE 

1. The Court has jurisdiction over this action pursuant to 28 U.S.C. § 

1331, Sections 20(b), 20(d), and 22(a) of the Securities Act of 1933 (“Securities 

Act”) [15 U.S.C. §§ 77t(b), 77t(d), and 77v(a)], and Sections 21(d), 21(e), and 27(a) 

of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78u(d), 

78(u)(e), and 78aa]. 

2. Defendants have, directly or indirectly, made use of the means or 

instrumentalities of interstate commerce in connection with the acts, practices, and 

courses of business alleged in this Complaint. 

3. Venue is proper in this district pursuant to Section 22(a) of the 

Securities Act, 15 U.S.C. § 77v(a), and Section 27(a) of the Exchange Act, 15 

U.S.C. § 78aa(a), because certain of the transactions, acts, practices and courses of 

conduct constituting violations of the federal securities laws occurred within this 

district. In addition, venue is proper in this district because Defendants Bhavnani 

and Lipstone reside in this district. 

SUMMARY 

4. In 2020, Bhavnani, Lipstone, and Lucid (together the “co-founders”) 

created Rari Capital (together with the co-founders, “Defendants”) and began 

developing Rari Capital’s protocol, a so-called decentralized finance (“DeFi”) 

project that provided financial services on the Ethereum blockchain and utilized 

blockchain-based smart contracts (i.e., programs run on a blockchain) to facilitate 

investment opportunities for investors. As part of the protocol, the co-founders 

developed two primary investment products called Earn pools and Fuse pools 

(together, the “Rari protocol”).    

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 2 of 23   Page ID #:2



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -2-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

5. This Complaint details multiple violations of the federal securities 

laws that stemmed from Defendants’ creation and operation of the Earn pools and 

Fuse pools. First, Rari Capital violated Sections 5(a) and 5(c) of the Securities Act 

because it offered and sold securities in the form of interests in the Earn pools 

(represented by a crypto assets in the form of ERC-20 tokens that had various 

names including the “Rari Fund Token”), purported governance crypto assets 

called Rari Governance Tokens (“RGT”), and interests in the Fuse pools 

(represented by a crypto asset called the “fToken”) without registering any of 

those offers and sales and without qualifying for any exemptions from such 

registration requirements. Second, Defendants violated Section 17(a)(3) of the 

Securities Act, and Rari Capital, Bhavnani, and Lipstone also violated Section 

17(a)(2) of the Securities Act, by making materially false and misleading 

representations about the Earn product to investors. Third, Defendants violated 

Section 15(a) of the Exchange Act by engaging in unregistered broker activity in 

connection with the Fuse pools. 

6. The Earn product, which first began receiving investor deposits in or 

around July 2020, functioned like a crypto asset investment fund where investors 

deposited crypto assets into initially one investment pool and Rari Capital then 

deployed the pooled assets into investment opportunities at third-party crypto 

asset lending platforms to seek returns for investors (referred to as “yield 

farming” in the DeFi community). After the Earn product’s initial release, 

Defendants created additional investment pools with varying risk profiles and 

continued to expand investment opportunities for these pools. In return for their 

investment in an Earn pool, investors received ERC-20 tokens, such as Rari Fund 

Tokens, that could be traded on secondary crypto asset trading platforms, and that 

represented their pro rata shares of the pool’s assets and through which they 

earned a pro rata share of the interest earned by the pool. For a limited period, 

Earn pool investors also received a distribution of RGT, Rari Capital’s purported 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 3 of 23   Page ID #:3



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -3-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

governance crypto asset. At its height, investors invested at least $95 million of 

crypto assets into Rari Capital’s Earn product. Rari Capital publicly advertised 

interests in the Earn pools and the RGT distribution, both of which were 

investment contracts and therefore securities, but did not register those offers and 

sales with the SEC even though there were no applicable exemptions from 

registration.  

7. Defendants also made material misstatements to investors, falsely 

claiming that the Earn pools, through a Rari Capital developed smart-contract 

mechanism called the “Yield Aggregator,” automatically and autonomously 

rebalanced pool assets between investment opportunities in search of the highest 

yields. Although Rari Capital scripted the Yield Aggregator to automatically and 

autonomously rebalance assets, in practice the Yield Aggregator often failed to 

operate and required manual prompting from Rari Capital employees to run its 

rebalancing mechanism. Additionally, Defendants materially misled investors by 

touting high interest rate returns of the Earn pools without factoring in the fees 

charged by Rari Capital and other transaction costs, which significantly reduced 

the returns paid to investors. About a third of investors in the Earn pools lost 

money because blockchain transaction fees and other platform fees exceeded any 

returns on their investments. 

8. In or around March 2021, Defendants released what became Rari 

Capital’s most popular product, the borrowing and lending platform called Fuse, 

which at its height held crypto assets worth at least $1 billion USD. The Fuse 

platform allowed individual users (or pool creators) to create unique pools to 

facilitate the lending and borrowing of crypto assets, including crypto assets 

offered and sold as securities. The Fuse pools were based on a set of smart 

contracts developed and controlled by Defendants that were deployed and run on 

the Ethereum blockchain. Defendants also provided a front-end user interface that 

allowed users to interact with the platform. Investors deposited crypto assets into 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 4 of 23   Page ID #:4



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -4-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

specific pools and received an fToken, tradeable on secondary crypto asset trading 

platforms, representing their pro rata interests in those pools’ assets and through 

which they earned their pro rata interests in those pools’ earnings. A portion of 

that paid interest was also allocated to the Rari protocol as a performance fee, 

with the remainder going to investors on a pro rata basis. The interest earned by 

investors depended on the underlying pool of assets and how much that pool had 

generated by lending its crypto assets. Rari Capital advertised Fuse’s services 

through Rari Capital’s public website, social media channels, and direct 

communications, but did not register the offer or sale of interests in the Fuse 

pools, which constituted investment contracts and thus securities, with the SEC 

even though there were no applicable exemptions from registration. 

9. Defendants also operated as unregistered brokers through the Fuse 

platform, which engaged in transactions for the accounts of Fuse users involving 

certain crypto assets offered and sold as securities, including MATIC, LINK, 

FTM, UST, and RGT. The underlying smart contracts, which, as noted above, 

were developed and controlled by Defendants through at least early 2022, 

received transaction instructions from users to move crypto assets offered and 

sold as securities into and out of certain Fuse pools, and the smart contracts 

developed and controlled by Defendants carried out those instructions. 

Defendants also created and administered several of the larger Fuse pools, one of 

which included at least one crypto asset offered and sold as a security. In addition, 

the Rari Capital team programmed the Fuse platform to assign a letter-graded 

“Rari Safety Score” to the Fuse pools based on a risk assessment of each pool. 

Defendants generated revenue for the Rari protocol by charging a performance-

based fee of approximately 10 percent of the interest earned from depositing and 

borrowing activity in each pool.  

10. Ultimately, operations of the Fuse platform were suspended after an 

unknown third party was able to drain over $80 million of users’ crypto assets 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 5 of 23   Page ID #:5



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -5-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

from pools connected to the platform through an exploit of a design vulnerability 

in the smart contracts’ coding. 

11. The SEC seeks Final Judgments that: (a) permanently enjoin 

Defendants from violating the federal securities laws and rules set forth in this 

Complaint; (b) permanently enjoin Rari Capital from participating in the issuance, 

purchase, offer, or sale of any securities; (c) permanently enjoin Bhavnani, 

Lipstone, and Lucid from participating in the issuance, purchase, offer, or sale of 

any crypto assets offered and sold as securities; (d) order Bhavnani, Lipstone, and 

Lucid to disgorge all ill-gotten gains they received as a result of the alleged 

violations pursuant to Sections 21(d)(3), (5), and (7) of the Exchange Act [15 

U.S.C. §§ 78u(d)(5), (d)(3), and (d)(7)], and to pay prejudgment interest thereon; 

(e) order Bhavnani, Lipstone, and Lucid to pay civil money penalties pursuant to 

Section 20(d) of the Securities Act [15 U.S.C § 77t(d)] and Section 21(d)(3) of the 

Exchange Act [15 U.S.C. § 78u(d)(3)]; and (f) order Bhavnani, Lipstone, and 

Lucid barred from serving as an officer or director of a public securities issuer 

pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].   

DEFENDANTS 

12. Rari Capital, Inc. is a Delaware corporation created in June 2020 by 

Bhavnani, Lipstone, and Lucid. Rari Capital’s operations were principally based 

in Los Angeles, California. Rari Capital was the relevant legal entity listed in the 

Terms of Service for the user interface facilitating the Earn and Fuse platforms. 

Rari Capital has never been registered with the SEC in any capacity and has never 

had any securities registered with the SEC. 

13. Jai Bhavnani, currently age 22, resides in Los Angeles, California. 

Bhavnani co-founded Rari Capital and served as the company’s Chief Executive 

Officer. Since Rari Capital’s inception, Bhavnani was responsible for key 

decision making and investor communications, and was involved in marketing 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 6 of 23   Page ID #:6



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -6-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

efforts for the Rari protocol. Bhavnani has never been registered with the SEC in 

any capacity or associated with any registered broker-dealers. 

14. Jack Lipstone, currently age 23, resides in Los Angeles, California. 

Lipstone co-founded Rari Capital and served as the company’s Chief Operating 

Officer. Lipstone was largely responsible for business development, marketing 

efforts, and community management for the Rari protocol. Lipstone has never 

been registered with the SEC in any capacity or associated with any registered 

broker-dealers. 

15. David Lucid, currently age 23, resides in Austin, Texas. Lucid co-

founded Rari Capital and served as the company’s Chief Technology Officer. 

Lucid was primarily responsible for developing the smart contracts underlying the 

Rari protocol. Lucid has never been registered with the SEC in any capacity or 

associated with any registered broker-dealers.  

RELATED ENTITY 

16. Rari Capital Infrastructure LLC (“Rari Capital Infrastructure”) is 

a Delaware limited liability company that was formed in March 2022 to facilitate 

development of, among other things, the Fuse platform, following a leadership 

change within the Rari protocol. Rari Capital Infrastructure thereafter wound 

down operations of the Rari protocol after an exploit of the Fuse platform in May 

2022 resulted in the loss of over $80 million of investors’ assets. Rari Capital 

Infrastructure has never been registered with the SEC in any capacity and has 

never had any securities registered with the SEC. 

BACKGROUND ON CRYPTO ASSETS 

17. The term “crypto asset” generally refers to an asset issued and/or 

transferred using distributed ledger or blockchain technology, including assets 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 7 of 23   Page ID #:7



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -7-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

sometimes referred to as “cryptocurrencies,” “digital assets,” “virtual currencies,” 

“digital coins,” and “digital tokens.” 

18. A blockchain or distributed ledger is a peer-to-peer database spread 

across a network of computers that records all transactions in theoretically 

unchangeable, digitally recorded data packages, referred to as “blocks.” The 

system relies on cryptographic techniques for secure recording of transactions. 

19. A blockchain “protocol” is a code, software, or algorithm that 

governs how a blockchain, or a feature of a blockchain, operates. 

20. A “wallet” is a piece of hardware or software on which crypto asset 

owners typically store the cryptographic key information providing them control 

over their crypto assets. Crypto wallets offer a method to store and manage 

critical information about crypto assets, i.e., cryptographic information necessary 

to identify and transfer those assets. 

21. A “smart contract” is a software or code that, based on 

programmable conditions, is deployed and run on a blockchain. 

22. On July 25, 2017, the SEC issued the Report of Investigation 

Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, 

advising “those who would use . . . distributed ledger or blockchain-enabled 

means for capital raising[] to take appropriate steps to ensure compliance with the 

U.S. federal securities laws,” and finding that the offering of crypto assets at issue 

in that report were offered and sold as investment contracts and, thus, securities. 

FACTUAL ALLEGATIONS 

A. Rari Capital Engaged in the Unregistered Offer and Sale of Interests in 

the Earn Pools and RGT as Securities 

i. Interests in the Earn Pools 

23. In 2020, Defendants began developing the Earn product, which was 

the first investment product for the Rari protocol. Earn functioned like a crypto 

asset investment fund that utilized blockchain-based smart contracts and other 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 8 of 23   Page ID #:8



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -8-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

coding to receive and deploy investors’ assets. Rari Capital’s initial public 

advertisements described the Earn product as a “website where you can deposit 

your crypto-assets and we will automatically rebalance it into the highest-yielding 

stable opportunities.”  

24. Defendants released one Earn pool in July 2020, and then released an 

updated version of the product in October 2020 that expanded the offering to three 

investment pools with varying risk profiles. However, all the Earn pools operated 

in the same way. Rari Capital developed a smart-contract mechanism for the Earn 

pools, referred to as the Yield Aggregator, that purported to move new investor 

assets into investment opportunities and rebalance existing pools of assets among 

different third-party investment opportunities to maximize returns. Defendants 

claimed that the Yield Aggregator performed this movement of assets and 

rebalancing automatically and autonomously. The investment opportunities 

consisted primarily of investments into third-party crypto asset lending platforms. 

Based on an algorithm run through computer code, the Yield Aggregator 

purportedly would determine whether it was economical to move invested assets 

into other investment opportunities. Over time, the co-founders, at times with 

input from the community of users or supporters, expanded the options for the 

third-party platforms to which the Earn pools, through the Yield Aggregator, 

could deploy investors’ assets. 

25. In return for depositing crypto assets into an Earn pool, investors 

received an ERC-20 token, initially the Rari Fund Token, tradeable on secondary 

crypto asset trading platforms, that represented each investor’s interest in the 

specific investment pool and right to any profits that were shared pro rata with 

other token holders. 

26. Rari Capital disclosed that the Rari protocol charged investors a 

withdrawal fee. In addition, Rari Capital disclosed that it charged a performance 

fee on Earn pool profits that was originally 20% and was later updated to 9.5% of 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 9 of 23   Page ID #:9



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -9-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

such profits. The fees, paid in crypto assets, were stored in the Rari protocol. A 

portion of such fees were distributed to wallets controlled by the co-founders and 

others to support further protocol development and cover expenses, including one 

wallet, known as the Rari Capital Treasury, that received approximately $370,000 

in fees from the Earn pools between July 2020 and September 2021.    

27. Rari Capital marketed interests in the Earn pools to investors through 

direct communications with investors, a public website for Rari Capital, public 

interviews, and through social media channels including Twitter, Telegram, 

Discord, and Medium, among others. Rari Capital advertised the pools’ ability to 

maximize yield for investors and make investing in DeFi easy for anyone. Rari 

Capital further publicly advertised the annual percentage yield, or “APY,” for the 

Earn pools, often highlighting particularly high APYs on social media platforms 

such as Twitter. 

28. An investor’s purchase of an interest in these opportunities—which 

occurred by the investor depositing money, in the form of crypto assets, into an 

Earn pool and receiving a token that evidenced the investor’s interest in the pool 

and a right to receive a pro rata share of the interest earned through the pool’s 

activity—constituted the offer and sale of investment contracts and thus securities.  

29. Investors in the Earn product invested in a common enterprise with 

other investors and with Rari Capital. After directing the crypto assets into the 

pools, the investors no longer controlled those assets. Investors’ crypto assets 

were then pooled by the smart contracts. Investors depended on Rari Capital to 

develop algorithms, smart contracts, and downstream lending opportunities to 

invest their assets for a return, as well as the efforts of Rari Capital and the co-

founders to further improve the Earn product, including by generating better 

investment opportunities. For example, an Earn pool’s annual percentage yield 

depended on both the Yield Aggregator’s ability to invest and rebalance the assets 

in that pool into higher yield generating investment opportunities, and the Rari 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 10 of 23   Page ID #:10



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -10-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

Capital team’s ability to create more investment strategies with higher returns. 

Because Rari Capital did not segregate the pooled assets by investor (but only by 

type of crypto asset), each investor’s fortunes were tied to the fortunes of other 

investors, and each investor profited or suffered losses equally and in proportion 

to their pro rata investments in the Earn pools. In addition, because Rari Capital 

directly shared in the returns investors made by receiving performance fees on 

Earn pool profits, the Earn pool investors’ fortunes were also linked to those of 

Rari Capital. As stated on Rari Capital’s website in or around October 2020, 

“[t]he more money you make, the more money we make.” 

30. Through its public statements, and given the economic reality of the 

Earn pools, Rari Capital invited Earn pool investors to reasonably expect that they 

would earn profits derived from the efforts of Rari Capital and others.  

ii. RGT 

31. In October 2020, in conjunction with the expansion of the Earn 

product to three investment pools, Rari Capital launched a so-called “liquidity 

mining” program that offered RGT to investors who invested crypto assets in one 

or more of the Earn pools during a 60-day period. The program was intended to 

encourage new and existing investors to make investments in the Earn pools. 

Investors also continued to receive Rari Fund Tokens as well as other ERC-20 

tokens. Under the program, Rari Capital planned to release 87.5% of the RGT to 

investors in the Earn pools and retain 12.5% of the tokens to compensate the Rari 

Capital team, as well as certain advisors to Rari Capital.     

32. Prior to the October 2020 launch, as part of the RGT distribution, 

Rari Capital offered a “Launch Partner Program” to solicit commitments of at 

least $100,000 USD to invest in the Earn pools from venture capital firms and 

other high net-worth investors. In return, investors would receive pro rata interests 

in the profits of the Earn pools and a proportional distribution of RGT. Rari 

Capital sent emails to investors and potential investors explaining that their 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 11 of 23   Page ID #:11



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -11-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

investments would start generating returns right away because their crypto assets 

would be invested by the Yield Aggregator, and because the investors would 

receive RGT. The Launch Partner Program functioned to guarantee revenues, 

from withdrawal fees and performance fees, that Rari Capital and its co-founders 

could use to continue developing and growing the Rari protocol, and also enabled 

Rari Capital to use RGT to fund its additional growth. Indeed, Rari Capital 

retained 12.5% of the RGT to use as compensation and benefited, together with 

investors, from any increases to RGT’s price. 

33. As with the Earn pools, Rari Capital marketed RGT as an investment 

opportunity into its efforts to grow the Rari Capital platform. RGT purported to 

give holders the ability to vote on certain governance decisions affecting the Earn 

pools, such as upgrades to the protocol and changes to fees. However, Rari 

Capital invited RGT investors to expect RGT to increase in value based on Rari 

Capital’s efforts to develop and increase usage of the Rari Capital platform, and 

the expectation that RGT would be tradeable on secondary crypto asset trading 

platforms. Although RGT did not entitle holders to pro rata shares of the Earn 

pool profits, Rari Capital publicly explained that 70% of the fees earned from the 

Earn pools would be used to buy back and burn RGT, and one of Rari Capital’s 

public posts on Medium explained that RGT “will be burned on every cent made 

by the protocol . . . decreasing the total supply of the token as the protocol 

succeeds.” According to Rari Capital, a declining supply of RGT would cause the 

price of RGT in the secondary market to increase to the benefit of RGT holders 

and investors. Investors shared proportionally in any increases in RGT’s value 

because the amounts of RGT they received were proportional to the amounts they 

invested in the Earn pools. Furthermore, Rari Capital made clear to investors that 

it was working to develop the secondary trading market for RGT through efforts 

to make RGT available for trading on secondary crypto asset trading platforms.   

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 12 of 23   Page ID #:12



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -12-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

34. RGT was offered and sold as an investment contract. Investors who 

invested in RGT expected the value of RGT to increase based on the efforts of 

Rari Capital and others.    

iii. Rari Capital Failed to Register the Offer and Sale of Interests in 

the Earn Product and RGT with the SEC  

35. Rari Capital made use of various means and instrumentalities of 

interstate commerce to offer and sell interests in the Earn pools and distribute 

RGT by, among other things, engaging in general solicitation through the Rari 

Capital website and through social media channels. Rari Capital was also 

involved in many direct communications with investors, including through email, 

Telegram, and telephone calls.    

36. Rari Capital never filed a registration statement with the SEC for its 

offers and sales of interests in the Earn pools and RGT. No exemption from 

registration applied. 

37. In total, investors invested crypto assets worth millions of dollars in 

the Earn pools through approximately 1,900 unique addresses. 

38. Defendants transferred approximately $370,000 in Earn pool fees to 

the Rari Capital Treasury. The co-founders, in turn, took payments from the 

crypto assets in the Rari Capital Treasury, primarily to reimburse them for certain 

costs incurred in starting Rari Capital. 

39. With respect to RGT, Rari Capital initially minted approximately 10 

million RGT, with a reserve of 12.5% for the Rari Capital team, but all of which 

was eventually distributed to users of the Earn pools. RGT was available for 

trading on numerous secondary crypto asset trading platforms, including Binance, 

Coinbase, and Uniswap.    

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 13 of 23   Page ID #:13



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -13-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

B. Defendants Materially Misrepresented the Operations of the Earn Pool 

Product  

40. Defendants claimed to investors that a key feature of the Earn pools 

was that they were balanced by the Yield Aggregator, a set of blockchain-based 

smart contracts and programming that operated autonomously and continuously to 

move invested assets into investment opportunities, and rebalance those assets 

among investment opportunities to obtain the advertised returns for investors. 

Accordingly, Rari Capital, Bhavnani, and Lipstone specifically marketed the Earn 

pools as functioning “automatically” and “autonomously.”  

41. Although Rari Capital scripted the Yield Aggregator to automatically 

and autonomously rebalance assets, in practice the rebalancing mechanism often 

failed to operate at all and required manual input from the Rari Capital team, such 

as from Lucid, to run the rebalancer code. There were multiple times when the 

rebalancing mechanism failed and the Rari Capital team did not immediately 

manually run the rebalancer code, and, as a result, as one example, the 

rebalancing occurred days after the deposit of investor assets. Contrary to the false 

and misleading representations in Defendants’ marketing materials, investor 

assets in the Earn pools were not always automatically or continuously rebalanced 

into higher-yielding strategies. Moreover, by manually turning on the Yield 

Aggregator when the rebalancing mechanism failed, Defendants created the false 

and misleading impression that the Yield Aggregator did in fact operate on its 

own at all times. The misrepresentations about the rebalancing mechanism of the 

Earn pools were material to investors in the Earn pools because a reasonable 

investor would consider the operation of the rebalancing mechanism an important 

fact in evaluating the performance of the Earn pools and considering a potential 

investment.     

42. In addition, Rari Capital’s marketing materials sometimes 

misleadingly touted the high APYs of the Earn pools without factoring in the 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 14 of 23   Page ID #:14



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -14-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

impact of the fees collected by Rari Capital and other costs. Those fees and costs 

had the effect of significantly reducing the actual returns paid to investors. Indeed, 

approximately 33% of investors lost money on their investments in the Earn pools 

as a result of the Rari Capital fees and other costs that investors incurred. These 

misleading statements about the supposedly high APYs of the Earn pools were 

material to investors in the Earn pools. 

C. Rari Capital Engaged in the Unregistered Offer and Sale of Interests in 

the Fuse Pools, Which Were Offered and Sold as Securities 

43. Defendants created and launched the Fuse platform in March 2021. 

The Fuse platform allowed individual users to create unique pools to facilitate the 

depositing and borrowing of crypto assets, including crypto assets offered and 

sold as securities. The Fuse platform enabled pool creators to customize the 

depositing and borrowing parameters for the pools, such as the types of crypto 

assets that could be deposited and lent, fee amounts, interest rate curves, and 

collateral requirements. After creating a pool on the Fuse platform, the pool 

creator had the option of retaining administrator rights to alter the parameters for 

the given pool, sometimes referred to as a “liquidity pool.” 

44. The Fuse platform was based on a set of smart contracts developed 

by Defendants and others on the Rari Capital team that were deployed and run on 

the Ethereum blockchain, and that owned the crypto assets deposited by investors. 

Defendants also developed and provided a web-based user interface that enabled 

users to access and interact with the smart contracts underlying the Fuse platform. 

Through the Fuse platform, users could either deposit crypto assets into a pool 

and earn their respective share of interest on lending and borrowing activity in 

that pool, or, after depositing crypto assets as collateral, borrow from a pool by 

withdrawing other crypto assets. In each specific Fuse pool, the smart contracts 

pooled together the crypto assets deposited by investors of that pool and made 

those crypto assets available for borrowing. Users who borrowed crypto assets 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 15 of 23   Page ID #:15



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -15-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

paid interest, which funded returns to the investors who deposited the crypto 

assets in the pool. Investors who deposited the crypto assets received an fToken, 

an ERC-20 token tradeable on secondary crypto asset trading platforms, that 

evidenced their interest in their specific Fuse pool and their right to receive a pro 

rata share of the pool’s interest earnings. 

45. Through the smart contracts developed by Defendants, Fuse received 

depositing and borrowing transaction instructions from users and executed those 

instructions, if the conditions for such requests were met within a given Fuse pool. 

Defendants, through permissions programmed into the Fuse platform’s smart 

contracts, maintained the ability to shut down the platform, replace the platform’s 

underlying smart contracts, and revoke the pool creators’ administrator rights.     

46. Through Rari Capital’s public website, social media channels, and 

direct communications, Rari Capital solicited users to deposit crypto assets into 

and borrow crypto assets from the pools on the Fuse platform. Rari Capital also 

promoted Fuse and specific Fuse pools by touting the purportedly high APYs 

associated with certain pools. 

47. Based on the facts set forth above, an investor’s purchase of an 

interest in these opportunities—which occurred by the investor depositing money, 

in the form of crypto assets, into a Fuse pool and receiving a token that evidenced 

the investor’s interest in the pool and a right to receive a pro rata share of the 

interest earned through the pool’s activity—constituted the offer and sale of 

investment contracts and thus securities. 

48. Investors tendered money, in the form of crypto assets, to the Fuse 

platform to participate in the Fuse pools. Investors’ crypto assets were then pooled 

by smart contracts and were made available for borrowing. Users who borrowed 

crypto assets paid interest to the pools they borrowed from. A portion of those 

interest payments, in turn, constituted the returns that were paid to Fuse pool 

investors who had deposited their crypto assets in the pools, while another portion 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 16 of 23   Page ID #:16



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -16-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

of the interest payments was earned by the Rari protocol in the form of 

performance fees. The returns earned by Fuse pool investors arose from the 

activities of the pools, which were facilitated by the smart contracts, in lending the 

crypto assets and receiving interest from that lending activity. In this way, each 

pool investor’s fortunes were tied to the fortunes of the pool’s other investors. In 

addition, because Rari Capital received some of the interest paid by borrowers to 

the Rari protocol, the Fuse pool investors’ fortunes were also linked to those of 

Rari Capital.   

49. Through its public statements and the economic structure of the Fuse 

pools, Rari Capital invited Fuse pool investors to reasonably expect that they 

would earn profits derived from the efforts of Rari Capital and others.  

50. Rari Capital made use of various means and instrumentalities of 

interstate commerce to offer and sell interests in the Fuse pools by, among other 

things, engaging in general solicitation through the Rari Capital website and 

through social media channels. Rari Capital was also involved in many direct 

communications with investors, including through email, Telegram, and telephone 

calls, to offer and sell the Fuse pool interests.    

51. Rari Capital never filed a registration statement with the SEC for its 

offers and sales of interests in the Fuse pools. No exemption from registration 

applied. 

D. Defendants Acted as Unregistered Brokers 

52. For the pools to function, Fuse, through the smart contracts created 

by Defendants, received depositing and borrowing transaction instructions from 

users and carried out those instructions, if the conditions for such requests were 

met within a given Fuse pool. Some of the transactions that Fuse effected for the 

accounts of its users involved certain crypto assets offered and sold as investment 

contracts, as defined by the Supreme Court case SEC v. W.J. Howey Co., 328 U.S. 

293 (1946), and thus securities.   

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 17 of 23   Page ID #:17



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -17-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

53. Through Rari Capital’s public website, social media channels, and 

direct communications, Defendants solicited users to deposit crypto assets into, 

and borrow crypto assets from, the pools on the Fuse platform. Defendants also 

promoted Fuse and specific Fuse pools by touting the purportedly high APYs 

associated with certain pools. 

54. In addition, Defendants engaged in certain services to support and 

encourage depositing and borrowing on the Fuse platform. For example, the Rari 

Capital team programmed the Fuse platform to assign a “Rari Safety Score,” 

graded from A to F, to each Fuse pool that purported to provide a risk assessment 

of each pool. Fuse users could view these “Rari Safety Scores” on both the 

platform’s user interface and Rari Capital’s website. Defendants also created and 

administered several of the larger Fuse pools. 

55. For these services, the Rari protocol charged a performance-based 

fee of approximately 10 percent on the interest earned in each Fuse pool. Interest 

earned in each pool depended on the interest rate curve selected by the pool 

creator and fluctuated based on the depositing and borrowing transactions within 

the pool. A smart contract developed by Defendants automatically calculated 

these fees, and once accrued, Defendants maintained the authority to collect them. 

Defendants at times exercised this authority. 

56. Defendants were never associated with a broker and never registered 

as brokers with the SEC, and did not operate pursuant to any exception or 

exemption from registration. 

57. Starting in December 2021, the co-founders of Rari Capital took less 

active roles in developing the Fuse platform. In March 2022, certain individuals 

created Rari Capital Infrastructure LLC separately from Rari Capital and its co-

founders to operate and further develop the Fuse platform. This change in 

leadership was announced in June 2022. Rari Capital Infrastructure continued to 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 18 of 23   Page ID #:18



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -18-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

solicit users over the internet to lend and borrow crypto assets on the Fuse 

platform.    

58. At Fuse’s peak, the smart contracts for the Fuse platform held crypto 

assets purportedly having a market value of at least $1 billion. Over the life of the 

Fuse platform, approximately 180 Fuse pools were created and over 10,000 users 

used the platform at one time or another. 

FIRST CLAIM FOR RELIEF 

(Violations of Securities Act Sections 5(a) and 5(c) against Rari Capital) 

59. The SEC realleges and incorporates by reference Paragraphs 1 

through 58 as if fully set forth herein. 

60. By engaging in the conduct described above, Defendant Rari Capital, 

directly or indirectly, made use of the means or instruments of transportation or 

communication in interstate commerce, or of the mails, to offer to sell or to sell 

securities through the use or medium of any prospectus or otherwise, or carried or 

caused to be carried through the mails or in interstate commerce, by means or 

instruments of transportation, securities for the purpose of sale or for delivery 

after sale, when no registration statement had been filed or was in effect as to such 

securities, and when no exemption from registration was applicable. 

61. By engaging in the conduct described above, Defendant Rari Capital 

has violated and, unless restrained and enjoined, will continue to violate Securities 

Act Sections 5(a) and 5(c) [15 U.S.C. §§ 77e(a) & 77e(c)]. 

SECOND CLAIM FOR RELIEF 

(Violations of Securities Act Section 17(a)(2) against Rari Capital, Bhavnani, 

and Lipstone) 

62. The SEC realleges and incorporates by reference Paragraphs 1 

through 58 as if fully set forth herein. 

63. Defendants Rari Capital, Bhavnani, and Lipstone, by engaging in the 

conduct described above, directly or indirectly, in the offer or sale of securities, 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 19 of 23   Page ID #:19



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -19-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

by use of any means or instruments of transportation or communication in 

interstate commerce or by use of the mails, obtained money or property by means 

of untrue statements of material fact or by omitting to state a material fact 

necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading.  

64. By reason of the foregoing, Defendants Rari Capital, Bhavnani, and 

Lipstone violated and, unless restrained and enjoined, will continue to violate 

Section 17(a)(2) of the Securities Act [15 U.S.C. § 77q(a)(2)]. 

THIRD CLAIM FOR RELIEF 

(Violations of Securities Act Section 17(a)(3) against Rari Capital, Bhavnani, 

Lipstone, and Lucid) 

65. The SEC realleges and incorporates by reference Paragraphs 1 

through 58 as if fully set forth herein. 

66. Defendants Rari Capital, Bhavnani, Lipstone, and Lucid, by 

engaging in the conduct described above, directly or indirectly, in the offer or sale 

of securities, by use of any means or instruments of transportation or 

communication in interstate commerce or by use of the mails, engaged in 

transactions, practices, or courses of business which operated or would operate as 

a fraud or deceit upon purchasers. 

67. By reason of the foregoing, Defendants Rari Capital, Bhavnani, 

Lipstone, and Lucid violated and, unless restrained and enjoined, will continue to 

violate Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)]. 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 20 of 23   Page ID #:20COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -20-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

FOURTH CLAIM FOR RELIEF 

(Violations of Exchange Act Section 15(a) against Rari Capital, Bhavnani, 

Lipstone, and Lucid) 

68. The SEC realleges and incorporates by reference Paragraphs 1 

through 58 as if fully set forth herein. 

69. At all relevant times, by engaging in the conduct described above, 

Defendants Rari Capital, Bhavnani, Lipstone, and Lucid, and each of them, 

directly or indirectly, made use of the mails and the means and instrumentalities 

of interstate commerce to effect transactions in, or to induce or attempt to induce 

the purchase or sale of, securities, without registering with the SEC as a broker or 

dealer in accordance with Section 15(b) of the Exchange Act [15 U.S.C. § 

78o(b)], and without complying with any exemptions promulgated pursuant to 

Section 15(a)(2) of the Exchange Act [15 U.S.C. § 78o(a)(2)]. 

70. By engaging in the conduct described above, Defendants Rari 

Capital, Bhavnani, Lipstone, and Lucid, directly or indirectly, violated and, unless 

restrained and enjoined, will continue to violate Section 15(a) of the Exchange 

Act [15 U.S.C. § 78o(a)]. 

PRAYER FOR RELIEF 

WHEREFORE, the SEC respectfully requests that the Court enter Final 

Judgments: 

(a) Permanently enjoining Defendant Rari Capital, and those persons in 

active concert or participation with it, who receive actual notice of the judgments 

by personal service or otherwise, and each of them, from violating Sections 5(a), 

5(c), 17(a)(2), and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c), 

77q(a)(2), and 77q(a)(3)] and Section 15(a) of the Exchange Act [15 U.S.C. § 

78o(a)]; 

(b) Permanently enjoining Defendants Bhavnani and Lipstone, and those 

persons in active concert or participation with each of them, who receive actual 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 21 of 23   Page ID #:21



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -21-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

notice of the judgments by personal service or otherwise, and each of them, from 

violating Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 

77q(a)(2) and 77q(a)(3)] and Section 15(a) of the Exchange Act [15 U.S.C. § 

78o(a)]; 

(c) Permanently enjoining Defendant Lucid, and those persons in active 

concert or participation with him, who receive actual notice of the judgments by 

personal service or otherwise, and each of them, from violating Section 17(a)(3) 

of the Securities Act [15 U.S.C. § 77q(a)(3)] and Section 15(a) of the Exchange 

Act [15 U.S.C. § 78o(a)]; 

(d) Permanently enjoining Defendant Rari Capital from directly or 

indirectly, including, but not limited to, through any entity owned or controlled by 

Rari Capital, participating in the issuance, purchase, offer, or sale of any 

securities; 

(e) Permanently enjoining Defendants Bhavnani, Lipstone, and Lucid 

from directly or indirectly, including, but not limited to, through any entity owned 

or controlled by Bhavnani, Lipstone, or Lucid, participating in the issuance, 

purchase, offer, or sale of any crypto assets offered and sold as securities; 

provided however, that such injunction shall not prevent Bhavnani, Lipstone, and 

Lucid from purchasing or selling securities for their own personal accounts;  

(f) Ordering that Defendants Bhavnani, Lipstone, and Lucid be barred 

from serving as an officer or director of a public issuer pursuant to Section 

21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)];  

(g) Ordering Defendants Bhavnani, Lipstone, and Lucid to disgorge all 

ill-gotten gains received as a result of their unlawful conduct plus prejudgment 

interest thereon pursuant to Sections 21(d)(3), 21(d)(5), and 21(d)(7) of the 

Exchange Act [15 U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)]; 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 22 of 23   Page ID #:22



  

COMPLAINT 
SEC v. RARI CAPITAL, INC. ET AL. -22-  

 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

(h) Ordering Defendants Bhavnani, Lipstone, and Lucid to pay civil 

penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and 

Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]; 

(i) Retaining jurisdiction of this action in accordance with the principles 

of equity and the Federal Rules of Civil Procedure in order to implement and 

carry out the terms of all orders and decrees that may be entered, or to entertain 

any suitable application or motion for additional relief within the jurisdiction of 

this Court; and 

(j) Granting such other relief to the SEC as the Court may deem just and 

proper. 
 

 
Dated:  September 18, 2024  /s/ Madiha M. Zuberi_____________ 
      MADIHA M. ZUBERI  
      ERIN E. WILK 
      Attorneys for Plaintiff  
      Securities and Exchange Commission  
         

 
 

Case 2:24-cv-07967     Document 1     Filed 09/18/24     Page 23 of 23   Page ID #:23