Digital Capital Management submitted a complaint against the international law firm Faegre Baker Daniels on Dec 31, 2019. The reason that Faegre Baker Daniels gave the company questionable advice relating to the cryptocurrency investment fund when Crypto Asset Management was preparing to launch a fund focused on investing in the digital currency.
The papers state that the legal company had told Digital Capital Management, then known as Crypto Asset Management, that cryptocurrencies were not considered securities by the U.S. Securities and Exchange Commission (SEC). Faegre Baker Daniels was accused of giving inaccurate analysis and advice to the company with regard to how to register with the agency under the Investment Advisers Act of 1940.
According to the Investment Company Act, an investment company includes any publication which is involved or proposes to involve in the business of reinvesting, owning investing, holding or trading in securities.
As a result, the US Securities and Exchange Commission brought an enforcement action against Crypto Asset Management and its founder, Timothy Enneking in 2018. The SEC asserted that the company raised more than $3 million for Crypto Asset Fund LLC to invest in digital assets. The SEC cease and desist order stated although the fund was legally an “investment company, it would have to pay a $200,000 civil penalty because the fund was not registered with the SEC.
Therefore, the company now accuses that Faegre Baker Daniels’ incorrect legal advice was the reason why the company did not register with the regulator. The complaint says that the law firm told that “crypto-assets are not securities” and structure the fund’s business suitably.
The SEC examines if any investment asset is a security or not by using the Howey Test which appeared in the 1946 case between the SEC and WJ Howey Co. It defined a security as the money invested in a common company that is expected to result in profits from the efforts of others.
Faegre Baker Daniels still keeps silent.
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