The U.S. Securities and Exchange Commission (SEC) announced on Tuesday that it has taken action against two cryptocurrency firms. Both mark the “first-ever” action of their kind by the Commission. One is against the “first regulated crypto asset fund in the United States” and the other is against an “ICO Superstore.”
SEC’s Action Against Crypto Asset Management
The SEC on Tuesday “announced its first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.” The firm, located in La Jolla, California, focuses primarily on managing investment portfolios of cryptocurrency and related assets. The Commission elaborated:
The SEC entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company while falsely marketing it as the ‘first regulated crypto asset fund in the United States’.
According to the order against CAM and its sole principal, Timothy Enneking, the firm raised more than $3.6 million over a four-month period in late 2017 “while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency.” The Commission clarified:
By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund’s assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company.
The firm “ceased its public offering and offered buy backs to affected investors” after being contacted by the Commission. “CAM and Enneking agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000,” the agency concluded.
SEC’s Action Against ‘ICO Superstore’
Also on September 11, the SEC took action against another crypto firm and its two owners. The Michigan-based Tokenlot LLC is self-described as an “ICO Superstore,” the SEC detailed, adding that its owners are Lenny Kugel and Eli L. Lewitt. The agency asserted:
This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.
Tokenlot operated from July last year to late February, “with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets,” the SEC order explains. The firm advertises that investors of “all experience levels” could purchase tokens on its platform during and after an ICO, including in private sales and pre-sales.
The company and its founders “promoted Tokenlot’s website as a way to purchase digital tokens during initial coin offerings (ICOs) and also to engage in secondary trading.” They received “orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities,” the Commission confirmed. “Their activities required Tokenlot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but they were not.”
Steven Peikin, co-director of the SEC’s Enforcement Division, said that the company and its founders promptly cooperated and “provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.” The agency concluded:
Without admitting or denying the SEC’s findings, Tokenlot, Kugel, and Lewitt consented to the SEC’s order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy Tokenlot’s remaining inventory of digital assets.
In addition, the Commission stated that “Kugel and Lewitt also agreed to pay penalties of $45,000 each and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years.”
What do you think of the SEC taking action against the two crypto firms? Let us know in the comments section below.
Images courtesy of Shutterstock, Capital Asset Management, and the SEC.
Need to calculate your bitcoin holdings? Check our tools section.