On Tuesday (11 September 2018), the U.S. Securities and Exchange Commission (SEC) announced "its first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets."
According to the SEC's press release, the SEC "entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company while falsely marketing it as the 'first regulated crypto asset fund in the United States'."
On its website, Crypto Asset Management ("CAM"), which is located in La Jolla, California, describes itself as a fund manager focused "primarily on managing investment portfolios of cryptocurrency and related assets through fund structures designed for investment by US and Non-US high net worth individuals and institutional investors."
Timothy Enneking is the founder and managing director of CAM. The website says that prior to founding CAM, he "was the founder and investment manager for the Crypto Currency Fund (CCF), one of the world's first private funds focused on cryptocurrencies." It also says that Mr. Enneking "has extensive M&A experience, having completed more than 70 transactions with an aggregate transaction value of over US$12 billion", and that he "has five university degrees, all in international business and law."
Per the SEC’s order:
"CAM, a California-based hedge fund manager, and its sole principal Timothy Enneking raised more than $3.6 million over a four-month period in late 2017 while falsely claiming that the fund was regulated by the SEC and had filed a registration statement with the agency. By engaging in an unregistered non-exempt public offering and investing more than 40 percent of the fund’s assets in digital asset securities, CAM caused the fund to operate as an unregistered investment company."
After CAM was contacted by the SEC staff, apparently, it stopped its public offering, and " offered buy backs to affected investors."
C. Dabney O'Riordan, who is co-chief of the Asset Management Unit within the Division of Enforcement at the SEC said:
"Hedge funds seeking to ride the digital asset wave continue to proliferate. Investment advisers must be sure that the funds they offer adhere to the applicable registration obligations and must accurately represent their funds’ regulatory status to investors.”
The press release also stated that CAM and its managing director "agreed to the SEC’s cease-and-desist order and censure without admitting or denying the findings against them, and agreed to pay a penalty of $200,000."
Also today, via a separate press release, the SEC announced that it had charged TokenLot LLC ("ICO Superstore") and its owners with operating as unregistered broker-dealers. This is significant because it is "the SEC's first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws."
On the TokenLot website, there is now a goodbye message for customers:
"It’s been an incredible journey! The TokenLot team wants to thank all of our customers for their support, loyalty, and business over the past year. At TokenLot, our founding mission was to provide businesses around the globe with the opportunity to access a democratized process for raising capital. Thanks to you, we were able to help many of the top blockchain projects achieve their funding goals. Unfortunately, due to the ever changing regulatory landscape of the cryptocurrency space in our jurisdiction, we regret to inform you that we will be closing TokenLot."
Featured Image Courtesy of Crypto Asset Management