By Jonathan Stempel
NEW YORK (Reuters) - New York's attorney general filed a lawsuit on Wednesday to shut down the cryptocurrency platform Coinseed Inc for allegedly defrauding thousands of investors, including by charging hidden trading fees and selling "worthless" digital tokens.
Attorney General Letitia James said Coinseed traded cryptocurrencies such as bitcoin without registering as a broker-dealer, and sold "CSD" tokens without authorization to raise money for its mobile application startup.
James also sued Coinseed Chief Executive Delgerdalai Davaasambuu and former Chief Financial Officer Sukhbat Lkhagvadorj, saying they overstated the midtown Manhattan-based company's management experience, while Lkhagvadorj misrepresented himself as a former Wall Street trader.
Coinseed's fraud totaled more than $1 million, according to James, who is also seeking restitution for investors.
The U.S. Securities and Exchange Commission filed a related lawsuit against Coinseed and Davaasambuu over the tokens, which both regulators said were sold from December 2017 to May 2018.
"I'm 100% sure that the suit is full of false accusations," Davaasambuu said in an email, referring to James' lawsuit. "It's very strange that they're blaming the very nature of how a startup works."
Lkhagvadorj could not immediately be reached for comment.
Both defendants have residences in Long Island City, New York, but Davaasambuu has expressed an intention to return to his native Mongolia, James said.
"Unregulated and fraudulent virtual currency entities, no matter how big or small, will no longer be tolerated in New York," James said in a statement.
The attorney general said Coinseed had touted the CSD token as "a great opportunity for young people who want to make money in the crypto market," and that the mobile app was "guaranteed" to help push its market value higher.
"In truth, nearly three years later, the CSD token has not been listed anywhere," her lawsuit said.
James' lawsuit in Manhattan Supreme Court alleged violations of the Martin Act, a New York state securities law. The SEC's lawsuit is in Manhattan federal court.