New York Attorney General, Letitia James is suing crypto asset management app, Coinseed and its two top executives alleging involvement in a scheme that defrauded over a hundred investors.
Delgerdalai Davaasambu, who founded the cryptocurrency firm and developed it as the CEO, has been charged alongside Coinseed’s Chief Financial Officer, Sukhbat Lkhagvadorj with defrauding their victims to the tune of $1 million.
As explained in the order, the company raised the money through an ICO that sold its own cryptocurrency, the CSD token, to help further develop additional applications on the trading platform.
While CSD ICO investors forked out their funds for what turned out to be worthless tokens, Davaasambu and his co-conspirators scammed them further through hidden fees.
Coinseed offers crypto-based auto-investing and social trading products and also allows users to earn interest rewards from decentralized lending protocols such as Compound and AAVE. While advertising low cost for their mobile trading platform, Coinseed operatives were adding undisclosed markups to the quoted price to extract additional fees from investors.
This matter was investigated in parallel with the U.S. Securities and Exchange Commission (SEC), which determined that Coinseed amounted to selling securities without filing a registration or qualifying for a registration exemption.
Coinseed promised investors that it would facilitate a secondary trading market for the tokens which would offer them an exit strategy to cash out their holdings just as demand increases and in turn, the value of the tokens.
“For over three years, Coinseed and its executives flagrantly and illegally violated New York state laws, but the corporate greed perpetrated by Coinseed while committing fraud against thousands of investors ends now. This lawsuit should send a clear message to all those trading cryptocurrencies that my office will work tirelessly to ensure transparency and fairness in the market and will not hesitate to protect investors’ wallets against all those who seek to defraud them,” said Attorney General James.
To resolve the SEC’s allegations, Coinseed organizers will have to compensate investors who participated in the scheme plus paying a fiscal penalty that substantially accounts for all of the company’s assets. Namely, the ICO issuer will be ordered either to voluntarily return all proceeds of the token sale or to go through a claims process.