Ben Strack

The SEC continued its enforcement spree on the crypto sector Monday by going after a Miami-based investment adviser the agency claims ran a fraud scheme.&nbsp;



BKCoin Management raised roughly $100 million from at least 55 investors to invest in cryptoassets between October 2018 and September 2022, the SEC <a href="https://www.sec.gov/news/press-release/2023-45" target="_blank" rel="noreferrer noopener">said</a> Monday.&nbsp;



The company and one of its principals, Kevin Kang, used $3.6 million to make “Ponzi-like payments,” the commission alleges in a complaint filed in the United States District Court for the Southern District of Florida. Kang also used at least $371,000 of investor money to pay for vacations, sporting events tickets, and a New York City apartment.



BKCoin and Kang assured investors their money would be used primarily to trade cryptoassets and generate returns via separately managed accounts and five private funds, according to the SEC. The firm misrepresented to some investors that it received an audit opinion from a “top four auditor,” the agency’s complaint adds.&nbsp;



“As we allege, investors entrusted their money to the defendants to trade in crypto assets. Instead, the defendants misappropriated their money, created false documents, and even engaged in Ponzi-like conduct,” Eric Bustillo, director of the SEC’s Miami regional office, said in a statement.



The SEC has obtained an asset freeze against BKCoin Capital and appointed a receiver — a neutral party appointed by a judge to manage another party’s affairs. The complaint seeks permanent injunctions, disgorgement, prejudgment interest and a civil penalty from the defendants.  



Kang and the company did not immediately return a request for comment.&nbsp;



<a href="https://blockworks.co/news/latest-in-crypto-hiring-hedge-fund-makes-hires-ftx-adds-while-rivals-cut">BKCoin Capital in June hired Paul Magahis</a> as president, Adriano Caloiaro as chief technology officer and Leanna Haakons as director of business development and investor relations. The firm said that month its diversified investment platform had more than $145 million in assets under management.



CoinDesk <a href="https://www.coindesk.com/business/2022/12/08/crypto-hedge-fund-bkcoin-fired-co-founder-kang-over-misappropriated-investor-funds/" target="_blank" rel="noreferrer noopener">reported</a> in December, Kang was fired from the company in October for allegedly misappropriating $12 million in assets from three multi-strategy funds, according to <a href="https://www2.miami-dadeclerk.com/ocs/ViewerPDF.aspx?QS=c5IYpK185bY23cLz6BVS3OZjSma9F6nnQySIhHZGBLkQk%2fn9xZFU%2fL%2f0aRq2uP1e2XLhdBMGEy5ZXt4dz9rywYCCxltgLt10z5YWbFvLiUpjOBE%2bOA311PTpSNE2bMBtpVnW9cAaik7nNWxpQIa02hOREUkr%2fjhuIhq4uaqdWEKIfliAm0o4Dmz9rYTD9CwRML03GRy0Z0%2fi0G8o4N1%2bMtSEvle2PKd9k1vHB76LL5kokLWcH3b4R4mpjJK%2bGgvlgg9VbIqaDaXyZDn7T1hN%2fd451WOukd9jDdxKSJKPiisbLjgCr2spgKHdh53SaiU1Y082GetUwTP2gdNoNs6gUr%2bZV6FjSo6AUU%2fV4Sk0HEdTeq4b5TPx%2bikJaxS6cOebq1F8HA%2be2sU%3d" target="_blank" rel="noreferrer noopener">filings</a>.



A BKCoin Management founder engaged with John Annesser — a partner at law firm Annesser Armenteros — after discovering irregularities with respect to the actions of one of its managing members, Annesser told Blockworks in an email. After an internal investigation, the company contacted the SEC and law enforcement agencies to self-report what had been discovered and seek the appointment of a receiver, he added.&nbsp;



“At all times prior to the appointment of a receiver, both BKCoin Management and the reporting founding partner have fully cooperated with all requests from both regulatory and law enforcement agencies,” Annesser added. “Due to the ongoing cases, no further comment will be made at this time.”



Monday’s SEC enforcement action comes as the agency <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">has ramped up</a> its focus on the crypto space over the last year.&nbsp;



The SEC last month charged Terraform Labs and CEO Do Kwon for <a href="https://blockworks.co/news/sec-charges-do-kwon-terraform-labs-with-fraud-misleading-investors">allegedly “orchestrating” cryptocurrency securities fraud</a>. A week earlier, crypto exchange <a href="https://blockworks.co/news/kraken-settles-sec-crypto-staking-program">Kraken agreed to settle with the SEC for $30 million</a> over its staking products.



Updated March 6, 2023 at 6:00 pm: Added comments from John Annesser, partner at law firm Annesser Armenteros.



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SEC Alleges BKCoin Collected From Crypto Investors, Ran Fraud Scheme

Kevin Kang

<div id="highlights-block_61cbc0b360174" class="highlights">
 <ul>
 <li>With Gary Gensler helming the SEC, there will be greater regulatory clarity in 2022</li>
 <li>2022 could see a shift in the narrative around bitcoin mining and energy usage</li>
 </ul>
 
</div>



2021 turned the tide for cryptocurrencies; a major influx of investment including household names such as Apple’s Tim Cook and Tesla’s Elon Musk, plus former Twitter CEO Jack Dorsey leaving the multi-billion-dollar company he founded to become a ‘missionary’ for Bitcoin with his new brainchild <a href="https://cms.blockworks.co/jack-dorseys-square-to-change-its-name-to-block/" target="_blank" rel="noreferrer noopener">Block</a> (formerly Square).



Bitcoin, ethereum and many other cryptocurrencies hit all-time highs during the year, enticing even risk-averse institutional money-managers to invest, and fuelling the crypto buzz amongst retail investors. November 2021 alone saw $4 billion entering the market.



As an exciting 2022 looms, here are the major questions, issues and likely developments in BKCoin Capital’s crystal ball.



<h3 class="wp-block-heading">ETFs&nbsp;</h3>



In October 2021, the first bitcoin futures ETF went live in the US after winning regulatory approval from the SEC. The ProShares Bitcoin Strategy ETF (<a href="https://cms.blockworks.co/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days/" target="_blank" rel="noreferrer noopener">BITO</a>) listed on the NYSE, giving the crypto industry its long-awaited wish. It launched with stunning success, surpassing $1 billion in trading volumes on its first day of trading and becoming the second biggest ETF launch ever, by volume.



A physical bitcoin ETF has long been an asset class watershed. It provides a more conventional means of investment, enabling investors to buy directly from traditional investment brokerages.



In November, the SEC rejected global investment manager VanEck’s filing for a first-of-its-kind bitcoin ETF, which could have supercharged bitcoin’s price. The SEC cited risks of manipulation and fraud within the market. However, with more regulation expected next year, don’t be surprised to see the SEC’s thinking shift. 2022 could be the year we finally see physical bitcoin ETF approval and Ethereum ETFs.&nbsp;



<h3 class="wp-block-heading">More regulatory dialog</h3>



With Gary Gensler helming the US Securities and Exchange Commission (SEC), there will be greater regulatory clarity in 2022. The IRS is also naturally motivated to introduce regulation — for US citizens to file taxes correctly — so the conversation is moving in a promising direction. Gensler also understands the importance of cryptocurrency as an innovative, new technology — one to be embraced, not shut down — having previously warned about risks to investors without sufficient regulation.&nbsp;



As a rapidly maturing asset class, cryptocurrencies need clear and pro-innovation regulatory guidelines for companies and investors. Regulatory fog does not benefit the industry. Eliminating these points of friction by sensible regulation is a prerequisite to becoming an integral part of economies worldwide and facilitating cryptocurrencies’ promises of transparency and free exchange.



<h3 class="wp-block-heading">Sustainable mining</h3>



The environmental impact of the cryptocurrency industry has been a hot topic in 2021, specifically energy usage in mining bitcoin. 2022 could see a shift in the narrative.



China’s <a href="https://cms.blockworks.co/china-mining-exodus-seen-as-positive-for-bitcoin/" target="_blank" rel="noreferrer noopener">ban</a> on cryptocurrency mining in May triggered a mass exodus of miners, and a race to acquire the associated machinery. The radical decision was motivated by other factors and the former home to 75% of global bitcoin mining capacity is clearly conscious of its carbon footprint and under pressure to reduce it.



While much remains to be done to mitigate the environmental impact, companies such as Riot Blockchain have been identifying eco-friendly projects with large energy capacities and a cost-efficient rate for crypto mining. There is an ongoing effort within the industry and it will be interesting to see how this develops in 2022.&nbsp;



Bitcoin&#8217;s hash rate has fully recovered post its short-term retreat after China’s mining ban. US miners have taken advantage and the country now has the world’s highest hash rate. With ESG investment front of mind, more investment will be made in North American miners.



<h3 class="wp-block-heading">The domino effect</h3>



After El Salvador made Bitcoin legal tender, 2022 will see more countries follow suit.&nbsp;



President Bukele’s decision to make El Salvador the world’s first country to officially recognize bitcoin as legal tender was powerful. It has the potential to empower people who are either under-banked or living in nations experiencing (hyper)inflation.



The pioneering move has already had — and will continue to have — implications in the emerging economies of Latin and Central America. Brazil, Panama, Paraguay and Argentina are four countries worth tracking in 2022. If they follow <a href="https://cms.blockworks.co/el-salvador-went-all-in-on-bitcoin-will-other-countries-follow/" target="_blank" rel="noreferrer noopener">El Salvador’s lead</a>, it could send major ripples through the financial markets and catalyze more institutional adoption.



Myanmar’s shadow government, the National Unity Government (NUG), has also declared tether as its official currency. While the NUG’s formal control in the country is still in flux given its exile after this year’s military coup, the European Union still recognizes the NUG as the country’s sole government.&nbsp;



<h3 class="wp-block-heading">A positive direction</h3>



With cryptocurrencies running from one all-time high to the next, 2021 also saw the cryptocurrency industry and market mature considerably.



While obstacles remain, the asset class has become more sophisticated, widely accepted and accessible. Prepare for more institutional investment, regulatory dialogue and the first-of-its-kind bitcoin ETF.&nbsp;



In a world of uncertainty, one thing is for sure — 2022 will be another exciting year with interest and the influx of capital only heading in one (positive) direction.