The Securities and Exchange Commission (SEC) has announced an enforcement action against Theorem Fund Services LLC (TFS), a fund administrator based in Boca Raton, Florida. The regulator claims that the respondendent failed to act on warning signs related to fraud committed against a private fund and its investors.
As per the SEC’s statement, TFS provided administrative services to a fund managed by EIA All Weather Alpha Fund Partners and Andrew M. Middlebrooks. The SEC accused both of fraud in May 2022. The alleged scheme involved misappropriating and misusing investors’ funds over five years.
In 2020, TFS had been named a “premier cryptocurrency fund administrator” by Blox, a cryptocurrency accounting and tracking firm.
FTS Mislead Investors Over the Value of Investments
During TFS’s involvement with the fund, significant losses occurred due to trading activities by EIA and Middlebrooks. However, at the direction of these individuals, TFS reputedly calculated the Net Asset Value without acknowledging the losses.
TFS then allegedly sent investors misleading account statements, overstating the value of their investments.
What is TradFi? Learn more about the definition of “traditional finance”: TradFi Explained: Exploring Key Elements of Traditional Finance
“Fund administrators are important gatekeepers in the private fund space,” said Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. He continued:
“Here, TFS failed to live up to its gatekeeper responsibilities and distributed inaccurate account statements to investors despite clear red flags.”
TFS agreed to a cease-and-desist order and will pay a $100,000 civil penalty. It also consented to disgorge $18,000 and pay $4,271 in prejudgment interest.
Crypto World Waits for Decision on Spot Bitcoin ETFs
Some may wonder about the timing of this and other SEC enforcement actions. The industry is in need of good PR, not scandals.
The digital assets world awaits the SEC’s decision on approving the first tranche of spot Bitcoin ETFs in the US. BlackRock, the world’s largest asset manager, was the first to apply for the new financial product on June 16. Invesco, WisdomTree, ARK Invest, and Valkyrie, along with several others, quickly followed.
Spot Bitcoin ETFs offer investors and Wall Street easier access to the digital asset without direct ownership.
The first Bitcoin ETF filing came over a decade ago from the Winklevoss twins, the co-founders of cryptocurrency exchange Gemini. The SEC rejected their proposal twice due to concerns about the risky nature of the early cryptocurrency market.
In the intervening time, the tone of enforcement has only gotten harsher. While some things have changed over the last ten years, there is no guarantee the SEC will now give its approval.
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