Cryptocurrency platform Coinseed has been charged with selling unregistered securities in the form of digital tokens and misrepresenting the financial services experience of its management team, including its former CFO.
Both New York Attorney General Letitia James and the U.S. Securities and Exchange Commission filed civil complaints on Wednesday against Coinseed and its founder and CEO Delgerdalai Davaasambuu. The New York lawsuit also names former CFO Sukhbat Lkhagvadorj as a defendant.
According to the complaints, Coinseed sought to finance its operations through sales of its “CSD” tokens without registering the offerings with the New York attorney general or the SEC.
James’s office also alleged the startup made material misrepresentations about its management team, with Lkhagvadorj falsely stating he was “a former Wall Street trader, when in truth he had never traded securities or commodities.”
“For over three years, Coinseed and its executives flagrantly and illegally violated New York state laws,” James said in a news release.
Coinseed, which was founded by Davaasambuu in 2017, operates a virtual currency trading platform through a mobile app. It offered CSD tokens in two rounds, selling approximately 200,000 for an estimated total revenue of only $141,410.
The SEC and James said the tokens were investment contracts, making them subject to the registration requirements for securities.
“Coinseed scammed investors into purchasing their CSD token by violating New York laws requiring complete and truthful disclosures, as would be required by those offering any other traditional securities offering,” the attorney general’s office said.
James estimated the total value of the alleged fraud at more than $1 million, including an undisclosed markup that Coinseed applied to the price of the virtual currencies it traded on behalf of investors and pocketed for itself.
Lkhagvadorj worked for Coinseed from its inception to December 2020. While holding himself out as a former trader, James said, he “had been merely a summer analyst at a trading firm with primary responsibilities of summarizing trades at the end of each day and shadowing actual traders.”
“Not once did Lkhagvadorj execute a trade himself on behalf of any trading firm,” the attorney general added.