US SEC Issues Cease And Desist Order Against Crypto Fund CoinAlpha

News, Regulation | December 10, 2018 By:

The US Securities and Exchange Commission (SEC) has issued a cease-and-desist order against fund manager CoinAlpha Advisors for distributing unregistered securities.

Based in Delaware, CoinAlpha was formed in July 2017 to act as the managing member of and manager to CoinAlpha Falcon fund, a Delaware limited partnership with its principal place of business in Sunnyvale, California. The fund reportedly raised approximately $600,000 from 22 investors, residing in at least five US states. Through 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 cryptocurrencies.

According to the cease-and-desist order issued on Friday, while CoinAlpha filed for a Form D Notice of Exempt Offering of Securities on November 3, 2017, the application was affected by the fact that the company had never registered, and no exemption from registration was available for the securities offering during the relevant period.

“Respondent did not have pre-existing substantive relationships with nine of the fund’s investors and engaged in a general solicitation of public interest in the securities offering through CoinAlpha’s website, which was generally accessible without password protection,” the order said. “Additionally, respondent engaged in general solicitation through blog postings, and media interviews and digital asset and blockchain conferences, accessible both via live attendance and through the Internet. Despite collecting accredited investor questionnaires and representations from investors certifying to their accredited investor status, respondent did not take reasonable steps to verify that investors in the fund were accredited investors.”

The SEC said that the company 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.

When contacted by the SEC staff, the commission said the company cooperated and immediately halted the offering and undertook a review of its website, social media postings, digital asset and blockchain conference marketing materials, and offering procedures. The company further voluntarily reimbursed all fees it had already collected, surrendered all rights to future management and incentive fees, and halt its offerings. CoinAlpha also agreed to pay a civil money penalty of $50,000.