New York State Attorney General Letitia James brought legal proceedings for potentially defrauding thousands of investors, by selling fake cryptocurrencies and charging undisclosed trading fees, against the Coinseed crypto site.
The Manhattan Supreme Court complaint by James argued that Coinseed violated the Martin Act on multiple occasions, a specific New York anti-fraud statute, and claimed that the crypto company illegally marketed unregistered securities in the form of a digital token, while making material misrepresentations regarding their management team.
The complaint alleged that without registering its company as a broker-dealer, Coinseed exchanged cryptocurrencies such as Bitcoin and sold “CSD” tokens without authorization from regulatory authorities to raise funds for its start-up of mobile applications.
James also sued two of his executives, in addition to filing the complaint against Coinseed cryptocurrency company: Delgerdalai Davaasambuu, CEO of Coinseed, and Sukhbat Lkhagvadorj, Chief Financial Officer of Coinseed. While the lawsuit claimed that the two directors inflated the management experience of the firm, it alleged that Lkhagvadorj misrepresented himself as a former trader on Wall Street when, in fact, he had never traded securities or commodities.
In addition, James’ complaint alleged that Coinseed scammed investors for more than $1 million and is also seeking compensation for the victims.
The US Securities and Exchange Commission (SEC) also filed suit against Coinseed and Davaasambuu over illicit digital assets in a separate case in Manhattan federal court. From December 2017 to May 2018, both regulators reported that Coinseed sold the tokens.
Fraud by Crypto on the Rise
In the crypto industry, litigation involving fraudulent ICOs and fake investments in cryptocurrencies are not fresh. The increasing interest in blockchain’s potential has led many organizations to search for ways to incorporate the technology into operating operations, including capital raising for businesses through a mechanism known as the initial coin offering (ICO). Some threats and benefits for investors come with the ICO, which is highly unregulated. With no official registration and due diligence, anybody could launch an ICO to raise money.
US regulators are worried that the growing usage of cryptocurrencies on the world market seems to enable fraudsters to draw investors to Ponzi schemes and other scams in which such currencies are used to facilitate fraudulent investments or transactions. These schemes offer investors high returns on investments, with little to no risk. Therefore, investors are encouraged to contact the SEC or securities regulators to report fraud and get support.