SEC Initiates First Action Against Hedge Fund Manager For Unregulated Digital Assetsbr>
The Securities and Exchange Commission has initiated its first enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets.
The SEC entered an order finding that Crypto Asset Management LP (CAM) offered a fund that operated as an unregistered investment company, all while falsely marketing it as the “first regulated crypto asset fund in the United States.”
According to 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 being contacted by the SEC staff, CAM ceased its public offering and offered buy backs to affected investors.
“Hedge funds seeking to ride the digital asset wave continue to proliferate,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “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.”
CAM and Enneking 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.
The SEC’s investigation was conducted by Ranah L. Esmaili and supervised by Adam S. Aderton of the Asset Management Unit.