The U.S. Securities and Exchange Commission announced on Tuesday that the agency has fined cryptocurrency hedge fund Crypto Asset Management LP (CAM) for operating an unregistered investment company and misrepresentations. The SEC issued a cease-and-desist order and $200,000 fine against the company and its owner, Timothy Enneking.
In the SEC press release announcing the move, the agency said that CAM had falsely marketed itself as a properly regulated cryptocurrency asset fund:
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.
The company apparently ended its public offering after the SEC made contact to address the issue. In addition, CAM also offered a buyback option for investors. The SEC order noted that the agency took those “remedial acts” into consideration when it determined the severity of the sanctions it ultimately imposed.
Though the agency’s order alleges that CAM “willfully violated” registration rules and knowingly made false representations, the firm’s owner denies any intentional violation. Enneking told Institutional Investor that the controversy was based on “two statements that appeared on our website: one statement referred to ‘regulated,’ which the SEC didn’t like. Another was an incorrect disclaimer in small print, in a footnote. We immediately took them down in November.”
Enneking acknowledged that the matter was handled “amicably” but suggested that the SEC’s enforcement action was at least in part motivated by a desire to send a message to the industry:
“Will you find for me another example of the SEC going through all of this for $3.6 million?” he asked rhetorically, before acknowledging that he is not a securities lawyer and does not know for certain if there are other instances. “The real reason we’re having this conversation is because the SEC wants to make a point. That point is, ‘Crypto funds, you’re dealing with securities. Crypto assets are securities.’ That’s the reason I submit that the SEC — I can’t speak for them — wanted to reinforce.”