The Securities and Exchange Commission (SEC) had sued two crypto advisory firms for allegedly operating a Ponzi-like scheme focused on cryptocurrencies.

According to a lawsuit filed on Sept. 15, the firms – Creative Advancement and Edelman Blockchain Advisors – and their CEO Gabriel Edelman "fraudulently offered and sold securities, using false and misleading statements, to at least four investors, raising from them a total of approximately $4,390,000."

The two firms operated between February 2017 and May 2021. They successfully raised $4.4 million from at least four investors during the period, SEC claimed.

"For example, one Investor initially invested $50,000. Edelman returned $75,000 within a few months, and the Investor subsequently invested an additional $600,000. Edelman then returned $720,000 a few months later. After that, the Investor invested $1,000,000–based on purported past performance and Edelman's promise that the Investor would receive a 15% return. Thereafter, Edelman did not return any funds to that Investor," the financial regulator said in the suit.

The investors were reportedly promised that their money will be invested in cryptocurrencies, which will be purchased at discounted prices. However, the firms invested "only a small portion of investor funds in digital assets," while Edelman utilized the majority of funds for his "own personal benefit," like paying off credit card bills and transferring the funds to family members.

The regulatory authority said Edelman used the two firms to operate a Ponzi-like scheme and paid early investors using the money from new investors to "encourage their ever-larger investments." It alleged Edelman of committing securities fraud and requested the court to permanently restrain him from "engaging in the acts, practices, and courses of business alleged herein."

Interestingly, the financial markets regulator has also opened a new office under SEC's Division of Corporation Finance to scrutinize public disclosures of crypto companies.

The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their headquarters in Washington, D.C.