Compliance Corner: SEC, Crypto Asset Fraud Allegation

Editorial Staff March 9, 2023

Compliance Corner: SEC, Crypto Asset Fraud Allegation

The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

The Securities and Exchange Commission has filed an emergency action to freeze assets and take other steps against Miami-based investment advisor BKCoin Management LLC and one of its principals, Kevin Kang. The SEC is acting over what it says is a crypto asset fraud scheme. 

From at least October 2018 through September 2022, BKCoin raised about $100 million from at least 55 investors to invest in crypto assets, but instead BKCoin and Kang used some of the money to make Ponzi-like payments and for personal use, the SEC said in a statement a few days ago. 

According to the SEC’s complaint, BKCoin and Kang assured investors that their money would be used primarily to trade crypto assets and represented that BKCoin would generate returns for investors through separately managed accounts and five private funds. 

The regulator’s complaint alleges that the defendants disregarded the structure of the funds, commingled investor assets, and used more than $3.6 million to make Ponzi-like payments to fund investors. 

The SEC complaint also alleges that Kang misappropriated at least $371,000 of investor money to, among other things, pay for vacations, sporting events tickets, and a New York City apartment. According to the complaint, Kang attempted to conceal the unauthorized use of investor money by providing altered documents with inflated bank account balances to the third-party administrator for certain of the funds.

The SEC said BKCoin materially misrepresented to some investors that BKCoin, or one of the funds, received an audit opinion from a “top four auditor,” when in fact neither BKCoin nor any of the funds received an audit opinion at any time.

The complaint was filed in the United States District Court for the Southern District of Florida. It alleges that BKCoin and Kang violated the antifraud provisions of the federal securities laws. 

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