The principles of cryptocurrency fund manager CoinAlpha Advisors LLC have agreed to settle charges brought by the US Securities and Exchange Commission (SEC), which found that their conduct was that of unregistered broker-dealers.
California-based CoinAlpha had been operating two crypto asset funds, one called CoinAlpha Falcon that runs a machine-learning strategy, and the other, CoinAlpha Index, was a market-cap weighted crypto index fund.
As explained in the order, the SEC determined that CoinAlpha fund amounted to selling securities without filing a registration or qualifying for a registration exemption, although it submitted a request for an exemption from securities law.
A communiqué on the matter issued by the commission said that CoinAlpha and its owners agreed to pay $50,000 to settle charges. They also agreed to halt the offering, review the website and marketing materials, and pay back all fees it had already collected.
The company raised over $600,000 from 22 investors residing in at least five US states to finance its fund that was meant to invest in digital assets.
“Through this offering, the investors purchased limited partnership interests in the Fund in exchange for a pro rata share of any profits derived from the Fund’s investment in digital assets,” the SEC states.
2020 Global Market Outlook: How the “Known Unknowns” Can Affect CurrenciesGo to article >>
The SEC claims that the offering ran afoul of securities laws because the vehicle being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.
ICOs Catch the Regulatory Eye
The regulatory status of cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics. In those cases, securities registration, disclosure and other requirements apply.
Most recently, the agency postponed its decision on whether to approve the listing of what would have been the world’s first Bitcoin exchange-traded fund (ETF).
The SEC has taken enforcement actions against a dozen companies, putting their offerings on hold after issuing warnings. Further, it has frozen the assets of several cryptocurrency firms, halted ICOs and suspended trading.
In May, the SEC’s Office of Investor Education and Advocacy (OIEA) created a bogus ICO website that shows how an investment opportunity that was too good to be true would look.
Putting cryptocurrency companies and their advisers on notice, however, failed to chill the booming market. The recent clampdown comes just as major US cryptocurrency operators are racing to build the nation’s first regulated venues for tokens deemed to be securities.