This week, the U.S. Securities and Exchange Commission (SEC) issued two first-of-their-kind enforcement actions in the blockchain industry. In one action, TokenLot LLC and its owners agreed to pay more than $500,000 in penalties to settle charges that they acted as unregistered broker-dealers in the sale and trading of securities. TokenLot LLC, a self-described "ICO Superstore" where investors could purchase digital tokens and engage in secondary trading, handled more than 200 different digital tokens for more than 6,000 retail investors from July 2017 until February 2018. In the second action, Crypto Asset Management LP, a hedge fund, agreed to pay a $200,000 penalty to settle charges that it operated as an unregistered investment company. The fund raised more than $3.6 million over a four-month period in 2017, while falsely marketing that it had filed a registration statement with the SEC and that it was the "first regulated crypto asset fund in the United States." In both actions the offending parties, once contacted by the SEC, ceased their activities and began refunding money to investors (in the case of TokenLot LLC) or offering buybacks to investors (in the case of Crypto Asset Management LP).

In another reported first this week, the federal judge in U.S. v. Zaslavskiy issued a ruling allowing the government to proceed with a criminal case in the U.S. District Court in Brooklyn, alleging that an initial coin offering is a security for purposes of federal criminal law. In the case, the defendant is charged with conspiracy and two counts of securities fraud for allegedly defrauding investors in two initial coin offerings for digital currencies backed by investments in real estate and diamonds that did not exist.

After trading began in the United States approximately one month ago, the SEC suspended trading through Sept. 20, 2018, of Swedish bitcoin exchange-traded notes and ether exchange-traded notes due to a "lack of current, consistent and accurate information" leading to confusion among market participants. The SEC noted that differing descriptions of the financial instruments in the broker-application materials, in public sources and in the offering materials led to confusion over the nature of the financial instruments. Because of the confusion, the SEC believes that the public interest and the protection of investors required the trading to be suspended.

Also this week, FINRA reported that it filed its first disciplinary complaint involving cryptocurrencies. FINRA charged Timothy Tilton Ayre with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called HempCoin. From January 2013 through October 2016, FINRA alleges, Ayre attempted to lure public investment in his worthless public company, Rocky Mountain Ayre, Inc. (RMTN), by making material misstatements in RMTN's public filings about its finance and business and by creating, offering and selling unregistered securities, HempCoin. RMTN publicized HempCoin as "the first minable coin backed by marketable securities." Investors mined more than 81 million HempCoin through late 2017, and bought and sold the currency on two cryptocurrency exchanges.

To read more about these enforcement actions, please see the following:

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