SEC and New York AG Look to Close Crypto Trading Platform

The defendants were unlawfully trading cryptocurrencies, like Bitcoin, without being a registered BD in New York, while simultaneously failing to disclose certain fees associated with the trading of virtual currencies on their investors' behalf, James alleged.

"Unregulated and fraudulent virtual currency entities, no matter how big or small, will no longer be tolerated in New York," James said in a statement while announcing the complaint.

"For over three years, Coinseed and its executives flagrantly and illegally violated New York state laws, but the corporate greed perpetrated by Coinseed while committing fraud against thousands of investors ends now," she said.

The defendants allegedly sought to finance their company by raising funds in an unregistered securities offering and luring in investors with false claims about their professional experience and the role of their management team, James said. Coinseed "scammed" investors into buying their CSD tokens by violating New York laws requiring complete and truthful disclosures, as would be required by those offering any other traditional securities offerings, she alleged.

James further alleged that the defendants, while advertising low fees for the mobile application trading platform, were adding an undisclosed markup to the quoted price to extract additional fees from investors. She also charged Coinseed and the individual defendants with conducting an unregistered securities offering in the form of an initial coin offering (ICO) for CSD, as well as never registering to trade any cryptocurrency within or from New York state.

James charged the defendants with violating New York's Martin Act and New York Executive Law.

She seeks restitution for the thousands of defrauded investors, disgorgement of already raised funds with interest, permanent injunctions against all the defendants to immediately stop their illegal behavior, an officer-and-director bar against Davaasambuu and Lkhagvadorj and a bar against Coinseed, prohibiting them from participating in any future securities offerings or as commodities BDs. James also seeks the full closing of Coinseed's business operations, she said.

"I'm 100% sure that the suit is full of false accusations," Davaasambuu said of the James complaint, calling it "embarrassingly bad." For one thing, Coinseed left New York in 2019 and "we haven't accepted any users from NY since 2018," according to Davaasambuu.

Also, "we don't add any fee in our trades and they're misrepresenting the bid-ask spreads intentionally," he told ThinkAdvisor by email, adding: "All of our trades are conducted according to the ask and bid prices shown in the app and we don't add any other fees. We have never claimed that our prices will be [the] same as Coinbase or any other exchanges."

Of the allegation that Coinseed was an unregistered commodities BD, Davaasambuu said: "There is not a single cryptocurrency exchange [that has a]  commodities broker-dealers license…. This has a very huge implication and they're trying to make us an example to force all crypto companies to [be] commodities broker-dealers."

Davaasambuu did not immediately comment on the allegations in the SEC complaint. Lkhagvadorj, who left the company Sept. 16, 2020, according to Davaasambuu, did not immediately respond to a request for comment.