SEC is to Examine Up to 100 Hedge Funds Focused on Cryptocurrencies, WSJ Reports

This investigation differs from the SEC's enforcement actions. A source told the Journal that examiners will flag suspicious activity, but their main goal is to help the SEC develop policies for digital currencies. Marc Elovitz, a partner at Schulte Roth & Zabel LLP, which advises hedge funds, said: "This is a way for the SEC overall to gather information and learn about important new technology and products." He added that the examiners' role is "to educate the commission overall about new businesses or new industries."

The examinations should begin within two months. Examiners will check whether the cryptocurrencies hedge funds bought match what the funds disclosed to investors. The SEC will also examine how funds describe the risks of theft and hacking, and review their trading strategies for digital assets.

The SEC identified 100 potential hedge fund managers to examine. The agency may conduct fewer inspections if many of these funds only dabble in cryptocurrency or if information gathered from initial examinations answers the SEC's questions.

Last year, hedge funds invested around $2 billion in cryptocurrencies such as bitcoin. Morgan Stanley reported that 84 new hedge funds focused on digital currencies launched during that period.

The plan follows an SEC memo released earlier this month. That statement declared that online platforms trading digital assets meeting the definition of a security must register with the agency.