Berachain's provision of a $25 million special refund right to a fund may violate SEC anti-fraud requirements.

According to documents obtained by Unchained, Berachain has granted Nova Digital, a cryptocurrency-focused fund under Brevan Howard and one of the lead investors in its Series B funding round, a refund right for its $25 million investment. This right is valid for one year following the Berachain token generation event (TGE, which occurs on February 6, 2025).

This refund clause means that Nova Digital's fund bears no risk to its principal: if the BERA token performs well, the fund will receive a return; if the token performs poorly, the fund can request a refund of its investment. Four lawyers specializing in the crypto space stated that the project's granting of refund rights to investors with TGE is "highly unusual."

Documents show that Nova Digital invested $25 million to acquire BERA tokens at $3 each as part of Series B funding. Other investors included Polychain, Hack VC, Arrington Capital, and Tribe Capital. The refund agreement was stipulated in a side letter signed on March 5, 2024.

The BERA token is currently trading at approximately $1.02, a drop of about 66% from Nova Digital's investment price ($3). If Nova Digital exercises its refund right (with a deadline of February 6, 2026), Berachain may need to pay out $25 million in cash to repay the investment, potentially causing liquidity issues. Project documents indicate that the tokens purchased by investors have a one-year lock-up period, so Nova exercising its refund right may result in forfeiting its BERA allocation.

Two lawyers familiar with capital market regulations stated that it is uncertain whether Berachain has a legal obligation to disclose the refund terms to other investors in the Series B round. Two anonymous investors stated that Berachain did not inform them that other investors had access to the refund terms.

In an email statement, Smokey the Bera, co-founder of Berachain, stated: "Unchained's report on this matter is neither accurate nor complete. Brevan Howard remains one of Berachain's largest investors. Their investment involves multiple complex business agreements, but they participated in the Series B funding round using the same documentation as all other investors."