In a first disciplinary action against a crypto hedge fund, the U.S Securities and Exchange Commission (SEC) has issued a cease-and-desist order and a $200,000 fine on Crypto Asset Management (CAM) and its founder for misrepresenting itself, according to a document published on the commission’s website.
Registration with the SEC
According to the SEC, Crypto Asset Management (CAM) billed itself as the “first regulated crypto asset fund in the United States,” but the fund never registered as an investment company. According to the agency, securities laws have been “willfully” violated by the fund, as it skirted the required registration associated with the holding and trading securities.
The California based fund had $37 million in assets under management at the end of 2017, managing investment in cryptocurrencies and other “related assets” for high net-worth individuals. Founder Timothy Enneking and his company illegally sold stakes in the hedge fund to U.S. investors. In December when valuations for bitcoin and other cryptocurrencies reached their highest point, the fund’s assets peaked at $37 million. Enneking also founded and managed other private funds focused on crypto, but he was never “registered with the Commission” in any capacity, the document noted.
The company had raised $3.6 million in the asset from 44 U.S. investors but stopped its public offering after being contacted by the regulators according to the filing, at which point they offered buybacks to investors.
Problem with other Brokers
Similar to the issue it had with CAM, the SEC also fined the founders of TokenLot, who allegedly built a website that connects buyers with digital assets, but failed to register with the agency as a broker.
TokenLot and its founders have agreed to pay more than $560,000 in penalties to settle the investigation without admitting or denying fault. Both founders, Lenny Kugel, and Eli Lewitt also agreed to be barred from the brokerage industry for at least three years.
In other news, the U.S Financial Industry Regulatory Authority (FINRA) filed charges against a Massachusetts based crypto broker for trading an unregistered cryptocurrency (HempCoin.) Rocky Mountain Ayre, Inc. (RMTN) and his founder Timothy Tilton Ayre have been charged with securities fraud and illegal distribution of the cryptocurrency.
FINRA, which is overseen by the SEC, released a statement on its website, where it stated that Ayre lures unsuspecting members of the public to invest in his company by selling the company’s token HempCoin which he claims is the first “minable coin backed by marketable securities.”
Ayre also made false claims about the nature of his company as well as falsifying its financial statements. FINRA has started a formal proceeding against RMTN, and if the company is found to have violated any laws, the firm or the individuals involved might be fined, censured, suspended or barred entirely from the industry.