A cryptocurrency trading company in New York called Coinseed is closing for good after being investigated for alleged fraudulent investment activity by the state attorney general's office.
The multi-year investigation by Attorney General Letitia James eventually led to a lawsuit filed in February, in which James' office accused Coinseed of trading cryptocurrencies through its app without being registered as a broker-dealer in New York. James' office alleged Monday that Coinseed continued to trade cryptocurrencies after the lawsuit was filed and was even trading on investors' accounts without their knowing.
"When platforms operating illegally in New York seek to trade on investors' money, we will use every tool at our disposal to stop their unlawful actions," James said in a statement Monday. "We will not allow rogue operators to hold innocent investors' funds hostage while they deplete accounts and transfer virtual currency to an offshore, unregulated trading platform."
Coinseed CEO Delgerdalai Davaasambuu confirmed the closure this week in an angry statement posted on the company's website. Davaasambuu said in the statement that James' office purposely harassed his company for years and that the broker-dealer claim is a hollow excuse to go after his trading platform. Davaasambuu noted that some other crypto trading companies also are not registered as broker-dealers in New York.
Investigators from James' office haven't targeted those other platforms and chose Coinseed because "they know that they can bully us because we can't spend millions of dollars in legal fights," Davaasambuu said.
Coinseed marks the second crypto trading company that New York that regulators have forced to shutter. Bitfinex and Tether closed in February after paying $18.5 million in penalties. James' office said the companies lied when they told investors that the a currency called stablecoins that they were selling were backed one-to-one by the U.S. dollar. Bitfinex and Tether paid the settlement but admitted to no wrongdoing.
In the lawsui against Coinseed, New York prosecutors said the company launched an initial coin offering — or an ICO — in 2017 that allowed investors to buy CSD, or Coinseed, tokens and use them to invest in cryptocurrencies through its app. An ICO is essentially the crypto version of an initial public offering, or IPO.
Under New York law, that ICO counted as the company selling securities, and Coinseed should have registered as a broker-dealer, prosecutors argued. Davaasambuu and the other Coinseed officials didn't register and instead let their platform grow to 4,000 to 5,000 active investors with about $50,000 worth of daily transactions, the lawsuit states.
State prosecutors also accused Davaasambuu of lying about his expertise and professional background in marketing materials for Coinseed. James said her office has received more than 170 complaints from investors since authorities filed the lawsuit.
Davaasambuu called James a "business-abuser" in his statement and said he had planned to relocate his company away from New York to a "crypto-friendly state." He said New York pushed to shut down his business after he refused state officials' offer to pay "a few hundred thousand dollars to close the investigation."
Davaasambuu said he believes his company would still be up and running if he didn't open it in New York. Using a vulgarity to describe James and her office, he warned other business owners to "run away from New York if you are running a crypto business there."
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