Two Cryptocurrency Firms Faces Formal Charges From SEC

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Two Cryptocurrency Firms Faces Formal Charges From SEC

Posted on September 12th, 2018 in Government Regulation by Ryan Warner

The SEC (Securities and Exchange Commission) has charged a crypto asset hedge fund and an "ICO Superstore," with penalties.

In the first enforcement action ever by the SEC a digital asset fund manager was charged with misrepresentations and registration failures.

While running an unregistered investment company, Crypto Asset Management LP, is alleged to have marketed itself as the "First regulated crypto asset fund in the United States." Timothy Enneking raised $3.6 billion in four months during an unregistered public offering that was claimed to be SEC regulated. Doing this and taking over 40% of the funds raised and investing them in cryptocurrencies broke several SEC regulations and was served with a cease and desist letter. The company has halted operations and offered buybacks to customers. They have also agreed to pay the SEC a $200,000 fine.

Token Lot, an "ICO Superstore," was the second company hit by the SEC. This is the first time the SEC has charged unregistered broker-dealers after the DAO Report which was published in 2017 advising investors that digital securities must be federally compliant.

Token Lot marketed itself as a way to ICO tokens and to trade them afterward. The company dealt in over 200 digital assets and 6,100 investors, some of the digital assets have now been determined to be securities.

Token Lot is not registered as a securities broker even though the dealt in securities and traded company profits for them as well. Token Lot operated from February 2017 until the investigation led to a voluntary halt of operations and an offer of refunds for unfulfilled orders, which led to less penalties from the SEC, but they were still hit with a $467,000 disgorgement fine with $7,925 in interest and the founders each being hit with a personal fine of $45,000. The founders will also need to pay a retainer for third party services to dispose of the remaining TokenLot inventory.