The Securities and Exchange Commission has taken aim at cryptocurrencies this year, but it’s now going after certain funds that manage investments in them.
On Tuesday, the U.S. financial watchdog issued a cease-and-desist order and $200,000 fine to Crypto Asset Management and its founder, Timothy Enneking.
The SEC said the fund, which at one point billed itself as the “first regulated crypto asset fund in the United States,” never registered as an investment company. According to the agency, the company “willfully” violated securities laws by skirting the required registration associated with holding and trading securities.
The case is the SEC’s first against a fund managing digital assets and marks an extension of the agency’s crackdown from cryptocurrencies to those investing in them.
The agency has maintained that bitcoin and ether are not securities but that initial coin offerings, or ICOs, are securities and fall under relevant securities laws. Regulators have cracked down on fraud in initial coin offerings and repeatedly highlighted risks to retail investors.
The La Jolla, California-based fund, which had $37 million in assets under management at the end of 2017, 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.
Despite founding and managing other private funds focused on crypto, and one focused on Eastern Europe, 60-year-old Enneking has “never been registered with the Commission in any capacity,” the SEC said.
After being contacted by the regulator, Crypto Asset Management stopped its public offering and offered buybacks to investors, according to the filing. Enneking agreed to a six-figure fine and the cease-and-desist but did not admit or deny the SEC findings.
Crypto Asset Management told CNBC that this was “old news,” and the events in question happened late last year. Enneking also underlined that no investors were harmed and the firm cooperated fully with the agency.
“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,” Enneking said.
The SEC also launched a separate order against unregistered crypto broker-dealer TokenLot on Tuesday. The agency claimed that company, which called itself an “ICO Superstore,” violated similar securities laws and failed to register. TokenLot agreed to pay a $471,000 fine to the agency but did not admit or deny the findings.