SEC Takes Its Initial Aim At Crypto Funds

In a regulatory first, the Securities and Exchange Commission (SEC) has issued a cease and desist order and imposed a $200,000 fine against a hedge fund that invested in digital assets and its founder. This is the first-ever enforcement action finding an Investment Company Act failure to register by a hedge fund manager based on the fund's investments in digital assets.

To highlight the significance of this enforcement action, we have unpacked recent developments in the regulation of digital assets and the SEC's views on these products.

A matter of jurisdiction: digital assets, tokens or cryptocurrencies?

The hedge fund manager involved in this case, Crypto Asset Management LP, served as the managing member and manager to Crypto Asset Fund LLC, a hedge fund formed for the purpose of investing in digital assets (Fund). While the Fund itself was formed to invest in digital assets, the SEC found that the Fund traded in "certain digital assets that were investment