SEC Takes First-Ever Cryptocurrency Enforcement Action Against Digital Asset Fund Manager | Practical Law

SEC Takes First-Ever Cryptocurrency Enforcement Action Against Digital Asset Fund Manager | Practical Law

The SEC issued its first-ever enforcement action against a hedge fund manager based on its investments in digital assets.

SEC Takes First-Ever Cryptocurrency Enforcement Action Against Digital Asset Fund Manager

by Practical Law Corporate & Securities
Published on 13 Sep 2018 • USA (National/Federal)
The SEC issued its first-ever enforcement action against a hedge fund manager based on its investments in digital assets.
On September 11, 2018, the SEC issued an Order instituting administrative and cease-and-desist proceedings in its first-ever enforcement action against a hedge fund manager based on its investments in digital assets.
In the Order, the SEC stated that:
  • Crypto Asset Management LP was falsely marketed as the "first regulated crypto asset fund in the US."
  • The fund's manager and its sole principal falsely claimed that:
    • the fund was regulated by the SEC;
    • a registration statement had been filed with the SEC; and
    • as a result, the fund engaged in an unregistered non-exempt public offering, causing the fund to operate as an unregistered investment company.
The fund and its manager 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.
In a warning, C. Dabney O'Riordan, Co-Chief of the SEC's Asset Management Unit, stated that "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."
For more information on the SEC's recent statements on ICOs, see Legal Update, SEC Director, Division of Corporation Finance, Discusses ICOs and Digital Assets.