Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

CoinAlpha Advisors LLC was formed 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 this offering, the investors purchased limited partnership interests in a fund formed by CoinAlpha in exchange for a pro rata share of any profits derived from the fund’s investment in digital assets.

The fund filed a Form D Notice of Exempt Offering of Securities with the SEC. It’s interesting that they checked the 506(b) box and not the 506(c) box on the Form D.

The SEC alleged 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. Additionally, 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. Despite collecting accredited investor questionnaires and representations from investors certifying to their accredited investor status, Respondent did not take reasonable steps to verify that investors in the Fund were accredited investors.

During the subsequent SEC investigation, CoinAlpha retained a third party who determined that all 22 investors were accredited investors.

The SEC found CoinAlpha engaged in an unregistered public offering. CoinAlpha did not admit or deny the SEC’s findings.