Magistrate Judge Recommends Partially Lifting Stay in SEC Crypto Fraud Case to Allow Investor Lawsuit

News | May 31, 2024 By:

On Friday, May 17, 2024, Jonathan Goodman, a magistrate judge of the United States District Court for the Southern District of Florida, issued a report and recommendation in the case between the Securities and Exchange Commission (SEC) and BKCoin Management, LLC.

The case originated in February 2023, when the SEC filed a complaint against BKCoin Management and its CEO Min Woo “Kevin” Kang, alleging various securities violations involving their management of crypto investment funds. The Court appointed a receiver to take control of the defendants’ assets. This created a broad stay of all litigation against the defendants and relief defendants to preserve the status quo.

However, one investor named Alejandro Canto had already filed a separate class action lawsuit in October 2022 in federal court in New York against BKCoin, Kang, and another individual named Carlos Betancourt. Canto claimed his six-figure investments managed by BKCoin lost most of their value due to mismanagement and unauthorized actions. He sought to represent other similarly situated investors.

In March 2023, Canto filed a motion to intervene in the SEC case, seeking to lift the stay only as applied to Betancourt, who was not a defendant in the SEC case. This would allow Canto to pursue discovery and potentially final judgment against Betancourt as part of the New York class action. However, Judge Goodman initially denied the motion without prejudice, noting Canto’s interests did not seem inadequately represented at that stage.

With the SEC case ongoing, Canto renewed his motion, shortly before the expiration of the 120-day period. Judge Goodman’s report and recommendation analyzed whether Canto should be allowed to intervene under either mandatory or permissive intervention standards. It also considered the SEC’s argument that a statute barred third-party intervention without consent.

Ultimately, Judge Goodman found the statute was not an absolute bar and recommended allowing permissive intervention. He also recommended partially lifting the stay to let Canto pursue Betancourt in the New York lawsuit, finding this would not prejudice the SEC case or receivership. The report analyzed factors such as status quo impacts, timing concerns, and merits of Canto’s underlying claims.

The case provides an example of the complex issues that can arise regarding third-party interests in securities litigation, and balancing those against preserving an orderly receivership process through broad litigation stays. The final decision remains with the presiding district judge.

Please contact BlockTribune for access to a copy of this filing.