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SEC files charges against fintech company for manipulating crypto-asset securities

Securities Enforcement Digital Assets Cryptocurrency Fintech Courts

Securities

On September 28, the SEC filed a complaint against a Florida-based fintech company, the company’s former CEO, and the CEO of a “market making” firm (collectively, “defendants”) for allegedly perpetrating a scheme to manipulate the trading volume and prices of crypto-asset securities. According the SEC, the company and the former CEO created and distributed a token using several methods, including paying individuals with tokens in exchange for promotions. They then allegedly hired the “market making” firm “to create the false appearance of robust market activity” for the token through the use of customized trading software, and then engaged in unregistered offers and sales of the token in an artificially inflated market in order to generate profits on the company’s behalf. The SEC claimed this scheme yielded more than $2 million for the company. The complaint charges the defendants with violating numerous provisions of the federal securities laws, including certain registration, antifraud, and market manipulation provisions, and seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and conduct-based injunctions. The SEC also seeks an officer and director bar against the former CEO. Based on the SEC’s announcement, the market making firm’s CEO has consented to a judgment, subject to court approval and without admitting or denying the allegations, which would permanently ban him from violating these provisions and from participating in future securities offerings. The market making firm’s CEO is also ordered to pay $36,750 in disgorgement as well as prejudgment interest of $5,118, with civil monetary penalties to be determined by the court. 

“Companies cannot avoid the federal securities laws by structuring the unregistered offers and sales of their securities as bounties, compensation, or other such methods,” Associate Director of the SEC’s Enforcement Division Carolyn M. Welshhans said. “As our enforcement action shows, the SEC will enforce the laws that prohibit such unregistered fund-raising schemes in order to protect investors.”

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