On January 6, the Securities and Exchange Commission announced that it had filed charges against an Australian businessman, Craig Sproule, and his two companies, Crowd Machine, Inc. and Metavine, Inc., alleging that they had made materially false and misleading statements in connection with the sale of digital coins that the SEC considers securities. Under some circumstances, cryptocurrencies and digital tokens may be considered securities if their underlying value depends on the success of another business endeavor.  Sproule allegedly offered investors an opportunity to purchase a digital asset that one of his companies had developed, “Crowd Machine Compute Tokens,” without registering that offering with the SEC.  The SEC further alleged that Sproule had falsely claimed he raised $40.7 million through his two companies.

As part of the offering, Sproule allegedly told investors that their funds would be used to develop a new technology to allow one of the companies’ existing technologies to run on a decentralized network of the users’ own computers.  However, rather than use the funds to develop new technology, Sproule and his companies allegedly diverted $5.8 million to gold mines in South Africa.  The SEC alleges that investors were never told that their invested funds would be utilized in that manner.  Sproule also allegedly offered the coins to investors without ensuring that they were accredited as required by SEC regulations.  

Sproule and his companies are charged with violating the antifraud and registration provisions of the federal securities laws.  The defendants have not admitted to any wrongdoing; however, they have agreed to a permanent injunction forbidding them from further violations of the securities laws.  The defendants also agreed not to participate in any future securities offerings, to disable the previously offered tokens, and to seek the removal of the tokens from digital asset exchanges.  Sproule also agreed to an officer/director ban and to pay a nearly $200,000 civil penalty.  The defendants also face disgorgement and civil penalties to be determined by the court.

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation.  If you need assistance with such a matter, please contact us today.