The Securities and Exchange Commission has been questioning the viability of cryptocurrency for a while and now it homes in on certain funds that manage investments in them.
On Tuesday, a cease-and-desist order and $200,000 fine was issued to Crypto Asset Management and its founder, Timothy Enneking by the U.S. financial watchdog. According to the agency, though the fund claims to be “first regulated crypto asset fund in the United States,” it has never registered as an investment company. Furthermore, the SEC blames the company of “willfully” violating securities laws by evading the required registration associated with holding and trading securities.
The incidence marks as an extension of SEC’s crackdown from cryptocurrencies to those investing in them, though it is their first action against fund managing digital assets. SEC has repeatedly drawn caution towards the risks to retail investors and has a strict vigilance on fraud in initial coin offerings. The agency maintains that bitcoin and ether are not securities but that initial coin offerings, or ICOs, are securities and fall under relevant securities laws.
The La Jolla is a California-based fund, which at the end of 2017 had $37 million in assets under management. It manages investment portfolios of cryptocurrency and “related assets” for high-net-worth individuals and institutional investors. According to the SEC, the fund raised $3.6 million from 44 investors, primarily individuals, and solicited those investments through its website, social media accounts, and traditional media outlet interviews.
Furthermore, Enneking has “never been registered with the Commission in any capacity,” despite founding and managing other private funds focused on crypto, and one focused on Eastern Europe, 60-year-old. The Crypto Asset Management stopped its public offering and offered buybacks to investors, according to the filing after being contacted by the regulator. Though Enneking did not admit or deny the SEC findings, he has agreed to a six-figure fine and the cease-and-desist
Enneking told CNBC, that events in question happened late last year and none of the investors were harmed and the firm cooperated fully with the agency. He added:
“We have been fully in compliance with the SEC since shortly after they let us know they had concerns about two passages on our website,”
A separate order against unregistered crypto broker-dealer TokenLot was launched by the SEC on Tuesday. Pegged as “ICO Superstore,” the company violated similar securities laws and failed to register. Similar to Enneking’s company, TokenLot agreed to pay a $471,000 fine to the agency but did not admit or deny the findings.