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The regulators fined a hedge fund manager and two men who ran a cryptocurrency website in two cases, which represents a new front in the government's campaign to control the digital asset market.
The regulations announced Tuesday are the first actions of the Securities and Exchange Commission against a hedge fund and brokers involving virtual currencies or digital tokens.
The hedge fund manager, Crypto Asset Management LP, falsely announced it as the first regulated fund in the United States focused on cryptographic assets, the SEC said.
In the second case, the brokers' website was presented as an "ICO hypermarket" to connect buyers with initial coin offerings, a popular way to raise funds in violation of investor protection laws.
The SEC said Crypto Asset Management and its founder, Timothy Enneking, had illegally sold hedge fund shares to US investors. The fund's assets peaked at $ 37 million in December, when bitcoin and other currency valuations reached their highest point.
Mr. Enneking, 59, prides himself on being a pioneer in the management of hedge funds investing in cryptocurrencies. He and his firm, based in La Jolla, California, agreed to pay $ 200,000 to settle the investigation. Crypto Asset Management initially raised $ 3.6 million from 44 US investors, the SEC said.
Mr. Enneking and his firm neither admitted nor denied the allegations. A lawyer for Mr. Enneking and his company did not immediately respond to a message requesting a comment.
In the second action, the SEC alleged that the founders of TokenLot, a website that connected buyers with digital assets, broke the law by not registering as a brokerage firm. To settle the investigation, TokenLot and its founders agreed to pay more than $ 560,000 in penalties without admitting or denying the fault, the SEC said.
The two founders, Lenny Kugel, 28, and Eli Lewitt, 27, agreed to be banned from the brokerage industry for at least three years. The SEC's order did not charge them with fraud, but said they had violated laws requiring brokers to submit to SEC supervision and sell only regulated investments to the public. A men's lawyer declined to comment.
A Wall Street Journal survey found that hundreds of digital coin offerings show fraud indicators, including plagiarized investor documents, guaranteed return pledges and missing or fake management teams. The SEC set up a website this year to sell a fake OIC called "Howeycoin" to warn investors about how they could quickly lose their money.
TokenLot was active from July 2017 to February and took orders from more than 6,000 investors, the SEC said. The company has executed 2,100 orders for anticipated ICO sales and has earned commissions of $ 112,000 to do so, regulators said. The company also earned about $ 232,000 through the management of symbolic secondary market transactions, the SEC said.
The TokenLot website indicates that it was closed "due to the ever-changing regulatory landscape of the cryptocurrency space in our jurisdiction".
Write to Dave Michaels at [email protected]
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