The Securities and Exchange Commission filed an emergency action against investment advisor BKCoin Management and one of its principals in connection with an alleged $100 million crypto fraud scheme.
The SEC said it successfully obtained an asset freeze, appointment of a receiver and other emergency relief against the Miami-based company and Kevin Kang.
The SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, alleges that BKCoin and Kang violated the antifraud provisions of the federal securities laws.
From at least October 2018 through September 2022, the SEC said in a March 6 release, BKCoin raised about $100 million from at least 55 investors to invest in crypto assets.
But the agency alleged BKCoin and Kang instead used some of the money “to make Ponzi-like payments and for personal use.”
The defendants disregarded the structure of the funds, the SEC said, commingled investor assets, and used more than $3.6 million to make Ponzi-like payments to fund investors.
Price Slump, Bankruptcies, Scandals Rock Crypto
The complaint also said Kang misappropriated at least $371,000 of investor money to pay for, among other things, vacations, sporting events tickets, and a New York City apartment.
Kang allegedly 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.
BKCoin was founded in 2018 by Kang and Carlos Betancourt. Kang was fired in October for allegedly misappropriating $12 million in assets from three multistrategy funds, according to court filings with the U.S. Circuit Court in Florida.
The complaint seeks permanent injunctions against both the defendants; disgorgement, prejudgment interest, and a civil penalty from both the defendants; and, an officer and director bar and conduct-based injunction against Kang.
Eric Bustillo, director of the SEC’s Miami Regional Office, said in a statement that “this action highlights our continued commitment to protecting investors and uprooting fraud in all securities sectors, including the crypto asset arena.”
BKCoin Management did not immediately respond to a request for comment.
The crypto sector has been rocked by plummeting prices, bankruptcies and scandals, most notably the overnight implosion of cryptocurrency exchange FTX and its sister company Alameda last November.
The U.S. Department of Justice has accused Sam Bankman-Fried, the founder of FTX and Alameda, of several counts of fraud.
On March 1, crypto bank Silvergate Capital (SI) announced that it needed time to review its books and adjust its 2022 earnings following negative events in January and February.
SEC's Crypto Approach Sparks Controversy
The SEC's approach to enforcement has been a controversial issue in crypto circles.
"It’s important that bad actors are held accountable and that other people and institutions running, or planning to run, similar Ponzi-like schemes see that regulators seem to be on the hunt for bad actors, especially in the wake of FTX’s implosion,” said Frank Corva, senior analyst for digital assets at Finder.
Corva noted, however, Bustillo’s comment about "the crypto asset arena," saying that "Congress has yet to determine how crypto assets are to be classified nor whether certain cryptos should be classified differently than others. And SEC Chairman Gary Gensler has publicly stated that he considers bitcoin a commodity.”
He added that nowhere in the news release does it state which crypto assets BKCoin or Kang traded – or if they traded crypto assets at all.
“Combining this with the fact that the U.S. has yet to create a proper classification system for crypto assets, it doesn’t seem that Bustillo has much ground to claim that this prosecution has anything to do with securitized crypto assets,” Corva said.
Ripple CEO Brad Garlinghouse recently said that crypto players have "already started moving outside" the U.S. en masse to avoid the regulatory sledgehammer of the SEC.
The SEC sued Ripple and top executives in 2020 for selling the world’s sixth-largest cryptocurrency, Ripple (known as XRP), as an unregistered security.
The case is currently playing out in courts, with a judgment due this year.
Cryptoexchange Binance was reportedly looking at the prospect of scooping up Gensler for an adviser appointment as much as two years before he took charge of the agency, according to The Wall Street Journal.
