The SEC Declared A Cease and Desist Proceedings with CoinAlpha Advisors LLC.
On December 7, 2018, CoinAlpha Advisors LLC submitted an Offer of Settlement, which the SEC has determined to accept. CoinAlpha Advisors LLC consented to the Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order.
CoinAlpha Advisors LLC is a Delaware limited liability company with its principal place of business in Sunnyvale, California. CoinAlpha Advisors LLC was formed in July 2017 to act as the managing member of and manager to CoinAlpha Falcon LP. They has never been registered with the SEC in any capacity.
CoinAlpha Falcon LP is a Delaware limited partnership with its principal place of business in Sunnyvale, California.They has never been registered with the SEC in any capacity. A total of 22 investors invested a total of $608,491 in CoinAlpha Falcon. In October 2018, after being contacted by the SEC, CoinAlpha Advisors LLC unwound the CoinAlpha Falcon, pursuant to the authority granted in CoinAlpha Falcon’s Limited Partnership Agreement.
CoinAlpha Advisors LLC formed CoinAlpha Falcon in October 2017 for the purpose of investing in digital assets. From October 2017 through May, CoinAlpha Advisors LLC raised approximately $600,000 from 22 investors, residing in at least five U.S. states. The investors purchased limited partnership interests in CoinAlpha Falcon in exchange for a pro rata share of any profits derived from CoinAlpha Falcon’s investment in digital assets.
CoinAlpha Advisors LLC filed a Form D Notice of Exempt Offering of Securities with the SEC on November 3, 2017. They did not file or cause to be filed a registration statement with the SEC, and no exemption from registration was available for the securities offering from October 2017 through May 2018.
CoinAlpha Advisors LLC did not have pre-existing substantive relationships with nine of the CoinAlpha Falcon’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. Additionally, CoinAlpha Advisors LLC 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. Despite collecting accredited investor questionnaires and representations from investors certifying to their accredited investor status, CoinAlpha Advisors LLC did not take reasonable steps to verify that investors in CoinAlpha Falcon were accredited investors.
CoinAlpha Advisors LLC controlled and directed the investment of CoinAlpha Falcon’s assets. Pursuant to the terms of its management agreement with CoinAlpha Falcon, CoinAlpha Advisors LLC earned both management fees from CoinAlpha Falcon and was entitled to incentive fees based on CoinAlpha Falcon’s investment performance. In 2017, CoinAlpha Advisors LLC received a distribution of management fees and incentive fees based on CoinAlpha Falcon’s performance. In 2018, CoinAlpha Advisors LLC accrued management and incentive fees, but did not take any distributions from CoinAlpha Falcon.
CoinAlpha Advisors LLC immediately halted the offering when contacted by the SEC staff and undertook a review of its website, social media postings, digital asset and blockchain conference marketing materials, and offering procedures. They further voluntarily reimbursed all fees it had already collected, surrendered all rights to future management and incentive fees, unwound CoinAlpha Falcon, and made payments to ensure that no CoinAlpha Falcon investor suffered a loss. During the SEC’s investigation, CoinAlpha Advisors LLC retained a third party who determined that all 22 investors were accredited investors.
As a result of this conduct, CoinAlpha Advisors LLC 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 SEC.
In determining to accept the Offer, the SEC considered remedial acts promptly undertaken by CoinAlpha Advisors LLC and cooperation afforded to the SEC. The SEC deems it appropriate to impose the sanctions agreed to in their Offer. Accordingly, pursuant to Section 8A of the Securities Act, CoinAlpha Advisors LLC was ordered a cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act and they shall, within 10 days of entry, pay a civil money penalty in the amount of $50,000 to the SEC for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).
This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in SEC reporting requirements, corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1, Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14C Information and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S