Adult supervision needed in the crypto trading rooms

classe dissipeeThe SEC, with the assistance of the NY AG, has sued CoinSeed, a cryptocurrency and trading platform. Its co-founder, Delgerdalai Davaasambuu, is also a defendant.

The SEC claim and the AG’s comments

  • In its public release, the SEC claims that the founders did not register the sale with the SEC, therefore preventing investors to gain appropriate information. $140k of assets were sold.
  • The platform also allowed the trading of cryptocurrencies without a proper commodities broker-dealer registration or valid exemption.
  • The SEC filed in federal courts in Manhattan, seeking injunctive relief, disgorgement plus prejudgment interest, and civil penalties.
  • Letitia James, the NY Attorney General, made a public statement alleging
    • a lack of registration in the state of New York,
    • over $1m of sale of assets, which were worthless by lack of registration,
    • embellishments of professional experience in the Initial Coin Offering (career as a “Wall Street trader”)
    • extra fees added to the trades by the exchange, without disclosure, and while advertising itself as low-fee,
    • and “guaranteeing returns” while “targeting a young audience”.
  • The AG is indicating a separate action while cooperating with the SEC. She is seeking disgorgement and disbarment from the industry.
  • The defendants are publicly denying every charge, and crying persecution against start-ups

Comments

The US securities market is highly regulated because so many crooks have run frauds and abuses on the public. You have to be balanced when recommending a financial product, because they carry risk. You have to put the recipient’s Best Interest before yours. Cryptocurrencies have carried the stigma of being used by bad actors from the start, and while some have skyrocketed (for now), not all of them have done as well, and there are a bunch of scandals already.

From the outside, the defendants look at best negligent and most likely pushy or fraudulent. They are childish to think that you could launch financial activities, like you launch a dot-com business from the back of a garage as they are arguing. This lawsuit is now sending chills in the back of many other crypto-currency operators and issuers, who may have the authorization to operate, but probably most do not have broker-dealer licenses. How far will the SEC go? Will the SEC enforce the need for a BD registration even before engaging in any conversation? We don’t know yet, but this lawsuit surely indicates a much stronger stance against fraud and in favor of monitoring of cryptocurrencies. The SEC is reminding the crypto community that they need adults in their trading rooms.

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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.

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