The U.S. Securities and Exchange Commission slapped CoinAlpha Advisors LLC with a cease-and-desist order and a $50,000 fine after finding the cryptocurrency fund engaged in an unregistered public offering.
From October 2017 through May 2018, Sunnyvale, Calif.-based CoinAlpha raised approximately $600,000 from 22 investors who purchased limited partnership interests in the fund in exchange for a share of profits from the fund’s investment in digital assets.
Securities cannot be offered for sale unless they are registered with the SEC or qualify for an exemption. One registration exemption is Rule 506(c), which allows general soliciation if sales are only to accredited investors whose status as accredited investors is “verified”.
The SEC alleged that CoinAlpha, which did not register its sales, failed to take adequate steps to verify the investors were accredited investors, despite collecting accredited investor questionnaires and representations from the investors certifying they were accredited. According to the SEC, CoinAlpha did not have a pre-existing relationship with nine of the fund’s investors and engaged in general solicitation of through blog postings, media interviews and at blockchain conferences.
The SEC in its order noted that CoinAlpha immediately ended the offering when it was contacted by the Commission and began a review of its website, social media postings and other marketing materials. It also reimbursed all all fees to its investors and hired a third party who determined that all 22 investors were accredited investors.
The order requires CoinAlpha to cease and desist from violations of the Securities Act and pay a $50,000 penalty.