On Friday (7 December 2018), the U.S. Securities and Exchange Commission (SEC) issued a cease-and-desist order against unregistered crypto fund manager "CoinAlpha Advisors LLC", under the terms of which a "civil money penalty in the amount of $50,000" must be paid to the SEC.
According to the SEC's order, here are the essential facts:
- CoinAlpha Advisors ("CoinAlpha"), a Delaware LLC with its main place of business in Sunnyvale, California, was established in July 2017 to act as the manager for the "CoinAlpha Falcon" crypto fund.
- CoinAlpha Falcon LP ("Fund") has never been registered with the SEC.
- 22 investors put a total of $608,491 into the Fund.
- "In October 2018, after being contacted by the Commission staff concerning the issues herein, CoinAlpha unwound the Fund, pursuant to the authority granted in the Fund’s Limited Partnership Agreement."
- "From October 2017 through May 2018, CoinAlpha "raised approximately $ 600,000 from 22 investors, residing in at least five U.S. states," and via 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."
- On 3 November 2017, CoinAlpha filed a Form D "Notice of Exempt Offering of Securities" with the SEC, but it "did not file or cause to be filed a registration statement with the Commission," and "no exemption from registration was available for the securities offering" during the aforementioned period.
- CoinAlpha "did not take reasonable steps to verify that investors in the Fund were accredited investors."
- CoinAlpha "controlled and directed the investment of the Fund’s assets."
- As soon as it was contacted by the Commission staff, CoinAlpha (1) "undertook a review of its website, social media postings, digital asset and blockchain conference marketing materials, and offering procedures"; (2) "voluntarily reimbursed all fees it had already collected, surrendered all rights to future management and incentive fees, unwound the Fund, and made payments to ensure that no Fund investor suffered a loss".
- CoinAlpha's conduct "violated Section 5(a) of the Securities Act, which prohibits the sale of securities through interstate commerce or the mails unless a registration statement is in effect, and Section 5(c) of the Securities Act, which prohibits the offer to sell any security through interstate commerce or the mails, unless a registration statement has been filed as to such security with the Commission."
CoinAlpha was ordered to "cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act" and to pay $50,000 "civil money penalty" to the SEC.
It is worth noting that the the main reason for such a relatively small penalty is that CoinAlpha prompty took remedial action and cooperated with the Commission staff.
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