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In recent months, the SEC has intensified its focus on cryptocurrency platforms, initiating a series of lawsuits with varying outcomes.
The defendants in these legal actions include prominent entities like Binance, Coinbase, and Gemini, as well as smaller firms such as Titan, which have been accused of manipulating their figures, not adhering to industry regulations, and more.
Misleading Investors
A press release from the SEC indicates that Titan Global Capital Management USA LLC engaged in deceptive practices from August 2021 to October 2022. Initially, Titan promoted a hypothetical performance of their services that suggested annualized returns as high as 2,700%.
The SEC asserts that this figure was derived from performances observed over a three-week period – which could have easily stemmed from artificially inflating the value of a single low-quality cryptocurrency. This misrepresentation may have led inexperienced traders to mistakenly believe that this was a viable investment opportunity.
Additionally, the SEC accused Titan – whose investors included both minor stakeholders and notable figures like Andreessen Horowitz and various celebrities – of employing improper hedge clauses. These clauses “created the false impression that clients had waived non-waivable causes of action against Titan,” utilized customer signatures without authorization, and misled investors about the custody of their assets.
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Notably, the allegation regarding improper signatures was based on self-reported information submitted to the SEC by Titan, which reportedly identified an internal error and sought to address the resulting issues.
Titan Settles out of Court
Osman Nawaz, the SEC’s Chief of Enforcement’s Complex Financial Instruments Unit, remarked on the case, cautioning companies with similar practices to regard the lawsuit against Titan as a warning.
“[…] Investment advisers must ensure the accuracy of disclosures made to existing and prospective investors. The Commission amended the marketing rule to permit the use of hypothetical performance metrics but only if advisers adhere to requirements reasonably designed to prevent fraud. Titan’s advertisements and disclosures presented a misleading representation of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance.”
In keeping with their earlier action of self-reporting their significant error, Titan has reportedly cooperated with the SEC. While they did not admit or deny the allegations, the firm has agreed to pay a civil penalty of $850,000, which will be allocated to affected clients, along with $192,454 in disgorgement.
A censure and a cease-and-desist order were also accepted.
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