INTERNATIONAL – US regulators brought two first-of-their-kind enforcement cases tied to cryptocurrencies Tuesday, fining a firm that promoted itself as a Walmart for initial coin offerings and a hedge fund that offered digital assets without meeting registration requirements.
TokenLot and its owners agreed to pay more than $500 000 (R7 million) to settle Securities and Exchange Commission claims that they failed to register as broker-dealers, the agency said in a statement on Tuesday.
The self-styled “ICO Superstore” and owners Lenny Kugel and Eli L Lewitt received more than 6 000 investor orders and handled more than 200 digital tokens without proper licenses from July 2017 through February, the SEC said. They agreed to resolve the allegations without admitting or denying wrongdoing.
In the second case, Crypto Asset Management was accused of marketing what it falsely claimed was the “first regulated crypto asset fund in the United States,” the SEC said in a separate statement.
The failure to register caused the fund, which raised more than $3.6m over a four-month period starting in late 2017, to be operating illegally, the agency said. The sole principal, Timothy Enneking, agreed to pay a penalty of $200 000 without admitting or denying the regulator’s findings.
“US securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” said Stephanie Avakian, co-head of the agency’s enforcement division.
An attorney for TokenLot declined to comment. An attorney for Crypto Asset Management did not immediately respond to a request for comment.
The cases brought Tuesday by the SEC are likely to be followed by others related to cryptocurrencies. An enforcement official told Congress in May that the agency has “dozens of investigations that are ongoing” focused on digital currencies.
The SEC has repeatedly cautioned that ICOs, in particular, are susceptible to fraud. Despite the warnings, token sales have raised billions. The agency has said it considers the vast majority of those offerings to be securities, which requires registration to comply with federal law.
Separately, in a ruling that was a win for the government, a federal judge on Tuesday allowed a criminal case to proceed to trial, concluding that jurors could find that the particular initial coin offering violated securities laws.
In the offerings, a company sells digital tokens that can eventually be redeemed for goods and services. The coins can be traded in secondary markets – which the SEC says make them securities and subject to its oversight.