The US Securities and Exchange Commission (SEC) announced on Tuesday (Sept 11) that it had for the first time taken action against two cryptocurrency firms.
One of the actions was against Crypto Asset Management LP (CAM) which claimed to have the “first regulated crypto asset fund in the United States” and the other is against a so-called “ICO Superstore.”
According to the order against CAM and its sole principal Timothy Enneking, the firm had 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.”
CAM agreed to pay $200,000 to settle claims that it violated securities law by not registering with regulators.
The case marks a strengthening of the SEC’s enforcement, moving from just looking at cryptocurrencies to examining the funds that manage investments in them.
The SEC noted that this was its “first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.”
The California based firm focuses primarily on managing investment portfolios of cryptocurrency and related assets.
The SEC order noted that “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.”
As a result, CAM has ceased its public offering and “offered buy-backs to those investors who were affected. It also 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,” added the SEC.
SEC targets ‘ICO Superstore’
Also on September 11, the SEC took action against Michigan-based Tokenlot LLC which describes itself as an “ICO Superstore”. The agency noted that the action against the firms and its owners Lenny Kugel and Eli L Lewitt, was the first case where the SEC has charged unregistered broker-dealers for selling digital tokens.
This comes following the findings of the SEC issued The DAO Report in 2017, which warned that any company which offers to sell digital securities must comply with federal securities laws.
Tokenlot operated from July 2017 to late February his year, “with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets,” noted the SEC order.
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,” said the SEC order.
“Their activities required Tokenlot, Kugel and Lewitt to be registered with the SEC as broker-dealers, but they were not,” noted the report.
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 will retain an independent third party to destroy Tokenlot’s remaining inventory of digital assets.