On February 17, 2021, the U.S. Securities and Exchange Commission announced charges against Coinseed, a company that purported to offer a mobile investment application that enabled users to invest in digital assets, and its co-founder and Chief Executive Officer, Delgerdalai Davaasambuu, in connection with Coinseed’s offer and sale of digital asset securities.
According to the SEC’s complaint, from at least December 2017 to May 2018, Coinseed and Davaasambuu sold digital asset securities called “CSD tokens” to hundreds of investors, including investors based in the US. The complaint alleges that Coinseed and Davaasambuu did not file a registration statement for the offering, and that the offering failed to satisfy any exemption from registration. The complaint further alleges that by failing to file a registration statement, Coinseed denied prospective investors the information required for such an offering to the public. Coinseed and Davaasambuu are charged with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. The SEC seeks permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties.
On the same day, the New York Attorney General also brought charges against Coinseed and Davaasambuu, as well as company CFO Sukhbat Lkhagvadorj. According to the AG, Coinseed and the individual defendants were unlawfully trading cryptocurrencies, like Bitcoin, without being a registered broker-dealer in New York, while simultaneously failing to disclose certain fees associated with the trading of virtual currencies on their investor’s behalf.
The complaint alleges violation of the Martin Act, which is New York State’s securities law. The New York complaint seeks restitution for the thousands of defrauded investors, disgorgement of already raised funds with interest, permanent injunctions against all the defendants to immediately stop this illegal behavior, an officer-and-director bar against the individual defendants and a bar against Coinseed prohibiting them from participating in any future securities offerings or as commodities broker-dealers, as well as the full closure of Coinseed’s business operations.