February 19, 2021

SEC and New York Attorney General Charge Digital Asset Trading Company with Registration Violations

The SEC and the New York Attorney General charged a digital asset trading company and its CEO with executing an unregistered, unexempt securities offering.

In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the company sold digital tokens to investors with the promise that the investors would receive a portion of the revenues generated from the fees associated with digital assets transactions on the platform. The SEC stated that because the company offered its tokens as an investment, the tokens constituted securities subject to registration requirements under Sections 5(a) ("Sale or delivery after sale of unregistered securities") and 5(c) ("Necessity of filing registration statement") of the Securities Act. Additionally, the SEC found that the company's public disclosures did not include the information that securities issuers are required to provide in registration statements.

The SEC is seeking (i) permanent enjoinment, (ii) disgorgement of ill-gotten gains, in addition to prejudgment interest, (iii) a ban on the company and its CEO from participating in any digital asset securities offering and (iv) civil money penalties.

In a parallel action, New York Attorney General Letitia James filed a Complaint in the New York State Supreme Court seeking (i) permanent enjoinment of the company, its CEO and its Chief Financial Officer and (ii) the appointment of a receiver to wind down the company's operations, return investor assets and funds raised during the offering, and supervise the recall and destruction of all of the company's virtual currencies.

Premium Content

Available only to Premium subscribers.