SEC issues Cease & Desist order against CoinAlpha

Maria Nikolova

The respondent 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.

The United States Securities and Exchange Commission (SEC) today issued a Cease & Desist Order against CoinAlpha Advisors LLC (CoinAlpha).

CoinAlpha, a Delaware limited liability company, was formed in July 2017 to act as the managing member of and manager to CoinAlpha Falcon LP. CoinAlpha Falcon LP (Fund) has never been registered with the SEC in any capacity. In October 2018, after being contacted by the SEC’s staff, CoinAlpha unwound the Fund.

CoinAlpha established the Fund in October 2017 for the purpose of investing in digital assets. From October 2017 through May 2018, CoinAlpha raised approximately $600,000 from 22 investors, residing in at least five U.S. states. Through the 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 digital assets.

CoinAlpha filed a Form D Notice of Exempt Offering of Securities with the SEC on November 3, 2017. CoinAlpha did not file a registration statement with the Commission, and no exemption from registration was available for the securities offering during the Relevant Period.

According to the SEC, CoinAlpha 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. Furthermore, CoinAlpha 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.

CoinAlpha earned both management fees from the Fund and was entitled to incentive fees based on the Fund’s investment performance. In 2017, Respondent received a distribution of management fees and incentive fees based on the Fund’s performance. In 2018, Respondent accrued management and incentive fees, but did not take any distributions from the Fund.

When contacted by the Commission staff, CoinAlpha 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, unwound the Fund, and made payments to ensure that no Fund investor suffered a loss.

The SEC says CoinAlpha 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.

CoinAlpha is ordered to cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act. The respondent will also have to pay a civil money penalty in the amount of $50,000 to the SEC.

The respondent consents to the entry of the Order Instituting Cease-and-Desist Proceedings, without admitting or denying the findings.

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